I get this question a fair bit, and the simple answer is – it’s not as hard as you think. This blog will give you all the basic information you need to become a Limited Company (registration-wise anyway), so let’s get started.
Before setting off on your Limited Company journey and the process of formally registering, the first thing to really understand is that it is a completely separate entity from you – it has its own identity, and does business under its own name, makes profit or loses, can acquire debt, has its own bank account and pays taxes all by itself.
In law, your Limited Company is an organisation that’s termed a ‘moral person’.
Understanding the separate basis of a company is very important because it explains why the legal formation of a limited company works the way it does. When a company is first founded, it is registered (incorporated) on the official list of companies kept by Companies House – these records are open and fully available to the public.
Different ways you can set up
Setting up a Limited Company is a pretty straight-forward process. You can do it online, by post, using an agent or via third-party software.
Companies House’s fee for online registration is £50 and can be paid via debit/credit card or a Paypal account. The company is usually registered within 24 hours.
To register by post, you should use the IN01 form, downloadable from Companies House’s website. Postal applications take 8 to 10 days and cost £71. You can pay by post by using a cheque made out to Companies House. If you need a fast-track service, your company can be registered on the same day if you get your application to Companies House by 3pm and pay a £78 fee.
Choosing your name
The first thing you should consider before you go ahead and set up is the name of the company. First, it can’t be the same as another registered company’s name and if it is too similar to any existing companies, you may have to change it if someone makes a complaint. Using the same name as another company is generally a bad idea anyway because of trademark restrictions. So, you probably don’t want to set up a cab firm called Ubers. You can use WebCheck on the Companies House website to find a name that’s available and won’t land you a lawsuit.
Your Company’s details
You will need to appoint at least one director and to provide their address, all shareholder’s as well as the company’s addresses. You also may appoint a secretary.
You’ll also be asked to include your trade description, or nature of business into the SIC list (Standard industrial classification of economic activities) and provide the SIC code to Companies House. The SIC list is available on the Companies House website.
Memorandum and articles of association
You will need to file a ‘memorandum and articles of association’ with Companies House. These documents tell everyone why you’ve set up the company and how you plan to run it.
You can use templates or models or can write them yourself, but in this case, state clearly what your company is for and how you wish to run it.
These documents can have significant legal importance in tax disputes and any legal proceedings.
Choosing your company’s shares
Get ready to provide information about the shares you are going to issue. This includes the number of shares (and type of shares) in the company and their total value.
They are different types of shares, but the simplest are the ordinary one. Their holders are typically entitled to one vote per share, and do not have any predetermined dividend amounts.
Other types of shares are ‘preference shares’, which are linked to specific rules related to the company’s operations.
Finalising your registration
Once the process of registration is complete, you will get a ‘Certificate of Incorporation’. This is a legal confirmation that the company exists and also shows the company number and date of formation.
The last thing you will need to do is to register for Corporation Tax with HMRC within 3 months of starting to do business.
And (here’s the really easy way to do all this) if you really don’t want to go through the admin process and just want to focus on creating a great product or service, an accountant could complete the whole registration for you.
Choosing the right structure can affect tax, or add important conditions to your Memorandum and article of Association, so it’s always a good idea to get expert advice from an accountant, or company formation specialist.