Whether you have outgrown your status as a sole trader, or the coronavirus pandemic has left you wanting to set up shop yourself, starting a limited company is an exciting business venture.
Read on for some top tips to consider when looking to set up as a limited company.
What does it mean to be a ‘limited’ company?
Being a limited company means limited liability status. A limited company is an entity in its own right, which has several advantages. Business owners will not be personally liable for any financial losses made by the business (as long as no fraud has taken place).
Because a limited company is seen as separate from its owners, it may also be easier to attract investment or business loans. In turn, this can help businesses grow more quickly than, for example, being set up as a sole trader.
A limited company can benefit from tax exemptions or advantages as well as its owners and directors benefitting from dividends and profit share.
Furthermore, a limited company exists separately from its founders or shareholders. Therefore, if they retire or leave, it continues to exist and operate as before. This provides security to employees. Moreover, if the directors of a company are also the main shareholders, decisions can be made more easily than, for example, in complex conglomerates or large multi-nationals.
Setting up as a limited company – step by step
To set up as a limited company, there are some key checklist items you need to do.
Research to ensure a limited company is right for you
Speak to friends who run their own business, attend online networking events, listen to podcasts, research online and read books and establish both the opportunities and challenges of starting and running a limited company. If you are looking to take the natural step from sole trader to limited company, this decision-making process may be shorter than if you’re looking to set up a business from scratch.
Choose a name
The next step is to choose a name. There are some stipulations, certain names, words or characters are prohibited and you need to ensure your chosen name is available and not already registered. Generally, your company name must end in Ltd or Limited and checking the trademarks register is a good idea, too.
Appoint directors and a company secretary
You must appoint at least one director who is responsible for management of the business on a day to day basis, following the company’s rules, ensuring all relevant taxes are paid, filing accounts and keeping company records. The law no longer requires you to appoint a secretary, but you may do so if you wish.
Decide who the shareholders are
You will need at least one shareholder or guarantor, who can be a director. Most limited companies are ‘limited by shares’. They’re owned by shareholders who have certain rights. Shareholders will have the right to be involved in certain decisions of the company, its share capital or constitution.
Identify people with significant control over your company
A person with voting rights or with over 25% ownership of shares in a company is considered as a person with significant control (PSC). It is now a legal requirement to identify who those PSC’s are and record a statement to this effect at Companies House.
Prepare documents outlining your agreement in how you will run your company
When you register your limited company you will need a set of ‘articles of association’.
The articles of association are written rules about the running of the company which are agreed by the shareholders, guarantors and directors. Whilst there are some statutory model articles available, it is advisable to consider having bespoke articles prepared to protect your company.
Check what records you’ll need to keep
There is a substantial list of records and accounts that you’ll need to keep when you set up a limited company. These range from a register of PSC’s, accounting records and records about the company including the results of votes and details of directors, shareholders and company secretaries (if applicable) and any changes.
You’re ready to register your company!
You’ll need to register an official address (known as a registered office) and select a SIC code, which tells the company registrar what your business does and within which industries it operates. You can also register for Corporation Tax at the same time as registering with Companies House – if not you can register separately with HMRC once you’ve incorporated.
How we can help
There are substantial requirements you need to meet to set up as a limited company, compared to starting out as a sole trader. Ensuring you get everything right is essential to help operations start smoothly. Having legal support when it comes to commercial operations can help save both time and money to ensure things are completed correctly first-time round.
Our commercial solicitors can work with you to go through your checklists and get you prepared for the next step in setting up your limited company.
Read more about the commercial support we offer businesses here. Alternatively, contact us to speak to a member of our commercial team.
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