How to start a limited company

For any budding entrepreneur, setting up a business can often begin with being a sole trader, where individuals operate as self-employed. However, as your business grows and develops, there may come a point where transitioning to a limited company structure makes sense. 

The same is true if you are starting a business with multiple individuals - here, you might want to establish a limited company right from the outset. 

Regardless of what your circumstances are, Quickbooks UK are here to guide you through the process with a step-by-step guide on how to start a limited company. 

In it, we will provide you with clear instructions on setting up a limited company, whether you are transitioning from being a sole trader or starting fresh with a group of partners. 

What is a limited company?

First things first - let's explore what a limited company is. 

Put simply, a limited company is a business structure that operates as a separate legal and financial entity from its owners. This means that the company itself is responsible for all of its finances, debts, and legal obligations, rather than the individuals who run it.

One of the first steps in establishing a limited company is registering it with Companies House, which is the official government register of companies in the UK. This registration process ensures that the company is recognised as a distinct entity, while subjecting it to the country’s specific laws and regulations.

Within a limited company, there are directors who are responsible for managing the company's affairs and making key decisions. These directors play a crucial role in the company's operations and act as representatives of the business.

Another important aspect of a limited company is that it has its own bank account. This helps business owners maintain clarity and transparency in financial transactions, and allows for proper management of income, expenses, and taxation.

One significant advantage of a limited company is that the individuals running it have limited liability. This means that their personal assets are generally protected in case of financial losses or debts incurred by the company. This provides a level of financial security and mitigates the risk for owners.

Further explore the differences between operating as a sole trader and starting a limited company with our sole trader vs limited company guide.

Should you set up a limited company?

Whether you should set up a limited company or not depends on your specific circumstances and needs. For some, the decision can be beneficial for tax efficiency, flexibility and expenses, but there are certain situations where you may want to remain a sole trader.

One circumstance where it is likely advantageous to set up a limited company is when multiple people are involved in the running of a business. This is because a limited company offers a clear structure for ownership, partnerships and shareholding. 

It offers a formal framework that can help establish roles, responsibilities, and expectations, ensuring smooth operations and effective governance.

And, due to the limited liability that limited company business owners have, this means that the personal assets of shareholders and directors are generally protected in the event of financial losses or debts. This structure can offer a greater sense of security and protection.

If the advantages of a limited company align with your business goals and circumstances, it may be the right choice for you. If you think it is, carry on reading for the full step-by-step guide.

Step-by-step guide on how to set up a limited company

When it comes to setting up a limited company, there are specific legal requirements that must be followed to ensure compliance. These requirements encompass registering for tax, filling in essential documentation, and maintaining certain records. 

By adhering to these steps, you can establish your limited company with confidence and set a solid foundation for your business's success.

So, let's dive into the detailed steps below and embark on the journey of establishing your limited company.

Step 1: Choose a name

The first step you want to consider when setting up a limited company is choosing a suitable name.

Your company name should be unique, distinct, and comply with certain regulations. In other words, it should not be too identical or too similar to the name of any existing company. 

Companies House has specific rules regarding ‘same as’ names, which include names that differ only in certain punctuation, special characters, or words with similar appearance or meaning to existing names.

Additionally, common words or characters used frequently in UK company names may also fall under the ‘same as’ category. For example, 'Hands UK Ltd' and 'Hand's Ltd' would be considered the same as 'Hands Ltd'.

There are limited circumstances in which you can register a ‘same as’ name. This includes situations where your company is part of the same group as the company or Limited Liability Partnership (LLP) with the existing name, or if you have written confirmation that the existing company or LLP has no objection to your new name.

It’s also important to avoid choosing a name that may be considered offensive or inappropriate. Offensive names can lead to objections during the registration process and potential legal issues, so you need to ensure that your chosen name is professional and respectful.

Moreover, it is essential to understand the distinction between trading names and registered names. A registered name is the official name of your company that is recorded with Companies House, whereas a trading name is an additional name under which your company may conduct business, but it is not legally recognised as the official company name. 

Before finalising your company name, it is crucial to check its availability. Use the Companies House website or other online tools to search for existing company names. 

Additionally, conduct a search for trademarks to ensure that your chosen name does not infringe on any existing trademarks.

Step 2: Appoint directors and a company secretary

Appointing directors and, optionally, a company secretary is the next essential step when setting up a limited company. 

Every limited company must have at least one director who plays a crucial role in managing the company and making key decisions. Directors have legal responsibilities to act in the best interests of the company and its shareholders.

Namely, they oversee the company's financial operations, ensure compliance with legal and regulatory requirements and make strategic decisions. They have a duty to act honestly and in the best interests of the company.

It's important to note that certain details about directors, such as their names, addresses, and dates of birth, are required to be disclosed and made publicly available through Companies House. This transparency ensures accountability and allows stakeholders to access relevant information about the company's leadership.

While not mandatory, appointing a company secretary can be beneficial. The company secretary acts as a liaison between the company and its shareholders, and helps to ensure that directors' decisions are implemented correctly.

By carefully selecting directors and, if deemed necessary, appointing a company secretary, you can establish a strong governance structure and ensure the smooth operation of your limited company. Their expertise and contributions will contribute to the effective management and compliance of your business.

Step 3: Specify shareholders, guarantors and PSCs

Step three of starting a limited company specifying the shareholders, guarantors and PSCs. The information you need to specify depends on whether the company is limited by shares or limited by guarantee. 

For companies limited by shares, the ownership is divided into shares, and shareholders hold those shares. The shares can be divided among the directors, and the percentage of shares can vary for each director. This allocation determines the ownership and voting rights within the company. 

Here, shareholders often have the right to vote on business decisions, and the number of shares a shareholder holds generally determines their influence over those decisions. Those who own more than 25% of the shares are considered ‘Persons of Significant Control’ (PSCs) and their details must be recorded with Companies House.

Whereby, in companies limited by guarantee, there must be at least one guarantor. Guarantors are company members who control the company and make important decisions. These may include directors or any other individuals or corporate bodies.

Unlike shareholders in companies limited by shares, guarantors do not usually take profit from the company. Instead, any surplus funds are kept within the company or used for other purposes. 

Companies limited by guarantee also have a specified ‘guaranteed amount’, which is the agreed amount of money the guarantors commit to pay to the company if it cannot meet its debts. This amount is not linked to the value of the company and serves as a financial safeguard.

Specifying the shareholders, guarantors, and identifying PSCs is crucial to establish the ownership structure and financial commitments within your limited company

Step 4: Prepare 'Memorandum of Association' and 'Articles of Association’ documents

As part of setting up a limited company, it is essential to prepare the Memorandum of Association (MoA) and Articles of Association (AoA) documents. 

The Memorandum of Association (MoA), on one hand, is a legal statement that is signed by all initial shareholders or guarantors, indicating their agreement to form the company. It outlines fundamental details such as the company name, registered office address, and the company's objectives. When registering online, the MoA is created automatically. If you choose to register by post, you will receive a template to fill in and submit.

It is important to note that the MoA cannot be altered or amended after creation. Therefore, it is crucial to ensure that all shareholders or guarantors fully understand and agree to its contents before signing.

Meanwhile, the Articles of Association (AoA) consists of written rules that govern how the company will be run. These rules are agreed upon by the shareholders or guarantors, directors, and the company secretary if one is appointed.

The AoA covers various aspects of the company's internal management, including the rights and responsibilities of shareholders and the appointment and removal of directors. It also involves voting procedures, dividend distribution, and other operational matters.

When preparing your documents and registering with Companies House, you have the option to use model articles provided by the government or create your own bespoke articles. If you choose to create your own, you can draft the AoA document and upload it during the registration process.

With the AoA, there is flexibility to tailor the rules to the specific needs and requirements of your company. However, it is important to ensure that the AoA complies with legal regulations and aligns with the best practices of corporate governance.

Step 5: Confirm what records you need to keep

For your limited company to remain financially and legally compliant, keeping accurate and organised records is crucial. This applies not only to records about the company itself but also to any other financial and accounting records.

Records about the company itself include important records such as incorporation documents. These documents include the certificate of incorporation, articles of association, and any amendments made over time. 

Additionally, it is essential to maintain shareholder and director information. This includes records of the names, addresses, and contact details of company directors and shareholders. 

Another important aspect of record-keeping is maintaining accurate meeting minutes. Documenting the minutes of company meetings, including board meetings and general meetings, is necessary to record discussions, decisions, and actions taken during these meetings. These can be used for reference in the future. 

In addition to records about the company itself, maintaining financial and accounting records is vital. These records play a crucial role in financial management, tax compliance, and decision-making. It is generally recommended to keep financial and accounting records for at least six years, although longer retention periods may apply in certain instances.

This documentation may include items such as income statements, balance sheets, cash flow statements, and bank statements. These records provide an overview of the company's financial performance, including revenues, expenses, assets, and liabilities. They are essential for monitoring the financial health of the business and making informed financial decisions.

Especially important is accurately tracking and categorising expenses - by doing this, you can gain insights into your company's spending patterns, identify cost-saving opportunities, and ensure compliance with tax regulations. 

To assist in the process of keeping accounting records, QuickBooks' software for limited companies offers features that streamline the recording and organisation of financial transactions and statements. Reduce the potential for errors and ensure accuracy in your financial records by using our range of helpful services. 

Step 6: Register with Companies House

The last step on your quest to set up a limited company is registering with Companies House, which will establish your company’s official presence. To do this, you need to provide a physical address in the UK as your company's official address. 

This address will be used for all written communication from Companies House. It is important to ensure that the address is located in the same country where your business is registered, whether that be England, Scotland, Wales or Northern Ireland. 

If you wish to keep your address private, you have the option to use the address of the person responsible for corporation tax with their permission or appoint an agent to handle the communication on your behalf.

Additionally, during the registration process, you will be required to choose a Standard Industrial Classification (SIC) code. This code identifies the primary activities or nature of your company's business. Selecting the appropriate SIC code helps Companies House and other organisations categorise your business activities.

To register with Companies House, you can complete the process online. The registration fee is £12. During the registration, you will need to provide three pieces of information about the shareholders and guarantors of the company. 

This may include details such as their birth town, mother's maiden name, National Insurance (NI) number, or other relevant information. It is important to have this information ready to complete the registration process successfully.

When you register with Companies House, you will also be automatically registered for Corporation Tax. This streamlines the process and ensures that your company is compliant with tax obligations from the start. 

If you are already registered with Companies House but not yet registered for corporation tax, you can use a specific form provided by Companies House to update your registration accordingly.

By following these steps and registering with Companies House, you establish the legal presence of your company and fulfil your obligations as a registered business entity.

FAQs

How much money do I need to set up a limited company?

To set up a limited company in the UK, you have the option of registering online for a fee of only £12, or you can choose to register by post for a fee of £40. However, these registration fees are just a small part of the overall costs involved.

In addition to the registration fees, you may need to consider expenses such as obtaining a registered address. A registered address is required for your company, and if you don't have an existing office space that can be used, you may need to rent an office or use a virtual office service.

Once registered, ensuring compliance with regulations is crucial for any limited company. While you can handle this yourself, many business owners choose to hire an accountant or accounting firm to manage their financial affairs. The fees for an accountant can vary depending on the complexity of your business.

For this, investing in QuickBooks accounting software can be beneficial for managing your company's finances efficiently. The cost of accounting software varies depending on the provider and the specific features you require.

It's important to note that the set-up costs for a limited company are highly dependent on your business and individual circumstances. The size and nature of your company, the industry you operate in, and any specific requirements or preferences you may have will all contribute to the overall costs. 

Can you set up a limited company by yourself?

Yes, it is possible to set up a limited company by yourself. When establishing a limited company, you have the option to appoint yourself as the sole shareholder and director, which means you will have full ownership and control over the company.

Alternatively, if you plan to establish a limited company with multiple shareholders and directors, you can do so as well. This allows you to share ownership and decision-making responsibilities with others involved in your business.

It's worth noting that even if you initially set up the company as a sole shareholder and director, you can add additional shareholders and directors at a later stage. This flexibility allows for changes in the ownership structure or the addition of key personnel as your company evolves and grows.

What do I need to set up a limited company?

To establish a limited company, there are several important things you will need. 

First, you must provide a physical address that will serve as the official correspondence address for your limited company. This address will be used for receiving official mail and legal documents.

Next, it is a legal requirement to have a separate business bank account for your limited company. This account should be used exclusively for company transactions and will help maintain clear financial records.

You will also need to provide the necessary details of the directors and shareholders of your limited company. This includes their names, addresses, and any other relevant personal information. 

Additionally, you will need to prepare the Memorandum of Association (MoA) and Articles of Association (AoA) documents. The MoA outlines essential information about the company, such as its name, registered address, and objectives, whereas the AoA covers internal regulations, including shareholder rights and director powers.

As part of this process, you'll need to specify the share capital structure of your company, which includes details such as the total number of shares, their nominal value, and how they are distributed among shareholders.

Lastly, it is crucial to set up a system for storing and maintaining financial and accounting records from the start of your limited company's operations. This ensures compliance with legal requirements and facilitates accurate financial reporting.

How long does it take to set up a limited company?

The process of setting up a limited company can be relatively quick. In many cases, it can be completed within 24 hours, but this timeframe may vary depending on the efficiency of the registration system and any additional checks required by the authorities.

If you decide to set up a limited company by post, the process usually takes longer. On average, it may take around 8-10 working days from the time you submit your application by mail until the company is officially registered. 

This timeframe accounts for the additional time required for physical delivery, document processing, and administrative procedures involved in the postal registration process.

Starting a limited company requires careful planning and adherence to specific legal and administrative procedures. By following the steps outlined in this guide, you can establish your company's legal presence, maintain accurate records, and ensure compliance with regulatory requirements.

To assist startups and small businesses in their accounting and record-keeping needs, QuickBooks software offers valuable features and tools. QuickBooks simplifies the process of tracking expenses, generating financial statements, and managing cash flow. 

With expense tracking features, startups can easily categorise and monitor their expenditures, helping them make informed financial decisions and identify cost-saving opportunities. QuickBooks also provides seamless integration with bank accounts, making it efficient to reconcile transactions and keep financial records up to date.

The information on this website is provided free of charge and is intended to be helpful to a wide range of businesses. Because of its general nature the information cannot be taken as comprehensive and they do not constitute and should never be used as a substitute for legal, accounting, tax or professional advice. We cannot guarantee that the information applies to the individual circumstances of your business. Despite our best efforts it is possible that some information may be out of date. Any reliance you place on information found on this site or linked to on other websites will be at your own risk.