Today’s blog is all about setting up a Limited Company and how to do this in the UK. Remember that if you are setting up a company outside of the UK then this is not the blog for you! Also remember to seek legal and accountant advice before you make any decisions on this. For let’s take a look at what a sole trader is and what a limited company is. Then we will explore how to set up a Limited company in more detail.
What is a sole trader?
A sole trader is a business that is managed and owned by one person. A sole trader is entitled to keep all profits after taxes but is also responsible for all losses incurred by the business. You can hire employees, but you must register as a self-employed person with HMRC in order to pay tax through the Self-Assessment process.
What is a limited company?
A limited company is a company form in which the firm has its own legal existence, distinct from its owners (shareholders) and managers (directors). Even though a corporation has only one shareholder and director, it is still a legal entity. That means the corporation can engage into contracts on its own behalf and be sued. If the company is sued, its directors and shareholders are not required to liquidate their personal assets to pay the debt unless they have been found guilty of misconduct or have issued personal guarantees in the case of directors.
Step by step on setting up a limited company
Is launching a limited company good for you?
You should determine whether you need to form a limited liability firm in the first place. When something goes wrong, sole traders have unlimited responsibility, which means they are individually liable. Being sole trader might also be inefficient in terms of taxes. Consider the type of business you’re starting and the hazards you’ll face. If you’re unsure, it’s usually a good idea to seek professional guidance.
Choosing a name for your limited company
You’ll need to come up with an original name for your company because two independent limited companies can’t have the same name. Keep in mind that anything disrespectful will be rejected by Companies House. They also offer a list of words and phrases that you should avoid using. And, as the world advances online, it’s critical to see if the name can be used as a URL.
Choose directors and company secretary
Every limited company requires at least one director, although the number of directors a corporation can select is unlimited. A director must be 16 or older when forming a limited corporation, and their responsibilities will range from legal to financial. According to Gov.uk, as a director, you must:
- Using talents, expertise, and judgement, try to make the company a success.
- Abide by the company’s standards as outlined in its articles of incorporation
- Making judgments that benefit the company rather than yourself
- If you think you might benefit personally from a deal the company makes, tell the other shareholders.
- Maintain company records and notify Companies House and HM Revenue and Customs of any changes (HMRC)
- Ensure that the company’s financial statements provide a ‘true and fair representation’ of the company’s finances.
- Pay corporation tax and file a corporate tax return
- Unless you run a non-profit organisation (such as a charity) and didn’t receive any compensation or benefits, such as a business car, you must register for Self-Assessment and send a personal Self-Assessment tax return every year.
Decide on your shareholders
At least one shareholder is required for a limited company. Shareholders can also serve on the board of directors. As a small business owner, you may find yourself as the sole shareholder. If your company has only one shareholder, that shareholder owns the entire company. You must provide information about the shares and how they were issued when you register your limited business. The number of shares and their total value, as well as the names and addresses of your shareholders, should all be stated.
Person with significant control
You must identify the people with significant control (PSC) in your firm and report them to Companies House on the PSC register. PSCs, according to Companies House, are those who have:
- over 25% of the company’s shares
- over a 25% of the company’s voting rights
- the power to appoint and dismiss most of the board of directors
Prepare paperwork outlining how you want to conduct your business
These are the paperwork that detail how your limited company will be run. The memorandum of association is a legal document that all your founding shareholders sign to confirm their agreement to form the business. It is generated automatically when you register your business online. The articles of association are a set of written guidelines for how the company should be conducted that have been agreed upon by the directors and shareholders.
Make a list of the records you’ll need to keep
You’ll need to keep two types of records:
- records about the business
- accounting and financial records
It’s crucial to understand your responsibilities because failing to keep accounting records can result in a £3,000 fine or disqualification as a business director.
You’ll also need to complete a corporate tax return, which entails financial calculations (including turnover, profits, and tax reliefs). To make preparing your company tax return as simple as possible, you should keep accurate financial records.
According to gov.uk, you should preserve records for six years from the end of the previous firm financial year, but there are times when you may need to keep them for longer. If you acquire something that you plan to last more than six years, or if you file your business tax return late, these are examples.
Register your company
You can now choose an official address and SIC code for your business and register it with Companies House. Standard industrial classification codes are five-digits that categorise organisations based on their business activity. You can register for £12 on the Companies House website or on one of the many incorporation websites. Some accountants will even pay for it as part of their small business accounting packages. When forming a company, you’ll need to furnish Companies House with each director’s residential address, or a ‘service address’ if you want to keep your information off the public record. You’ll need to supply your registered company location as well as a statement of capital, which is a summary of your new limited company’s share structure.
Why you might need legal advice/accountants’ advice
- An accountant has years of experience and expertise and can be a valuable resource for you as you begin on your entrepreneurial adventure.
- Before it’s too late, an accountant can notice problems with your finances.
- Tax regulations, PAYE, NI benefits, liquidation, and other significant issues can all be addressed by an accountant.
- Changes in government legislation will be kept up to date by an accountant.
- An accountant can help your business grow by identifying strategies to maximise its potential.
- A solicitor can help with what financial resources are available to you, what the legal consequences are, if the terms of a lender are reasonable, cash flow, goods and services as well as insurance.
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