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11 Min. Read

How to Start a Limited Company in the UK

How to Start a Limited Company in the UK

Businesses in the UK can be organised in a variety of structures. You might be a sole trader, in a business partnership, or the director of a limited company. Setting up a limited company requires some patient preparations. You can’t just decide you’re a limited companyā€”you must follow all the UK government rules and registration procedures.

It’s wise to follow a logical order as you start the process of incorporating your company. There can be time delays that have a knock-on effect on the whole process.

The very first question to answer is: Should my business even be a limited company?

Here’s What We’ll Cover:

What Is a Limited Company?

What’s in a Name?

Assign the Parts

Golden Rules of Your Company

Am I Going to Be Drowning in Paperwork?

Nearly There Now!

What Is a Limited Company?

Your business set-up can have a big effect on how you pay tax and get funding. It’s also determined by what you actually do. There are pros and cons to all the various business structures.

Make sure you’re choosing the best fit for your business and your future goals. There are accountancy and legal specialists who advise on exactly this quandary.

There are two types of limited company. Companies that are ‘limited by guarantee’ are usually not-for-profit. We’re going to focus on companies that are ‘limited by shares.’ These are companies that aim to make a profit. They have at least one shareholder and, after paying tax, keep their profits.

It’s this separation of business and personal that’s very appealing, and encourages lots of freelancers, SMEs, start-ups, contractors, consultants and sole traders to set up a limited company. But do really consider all your options first, before you make the final decision to set up a limited company.

What Kind of Limited Company?

It’s time to relax into the fact that, in this process, one question is going to lead to several other questions. Now you’ve decided you’re going to set up a limited company, settle in for some more decision making.

Firstly, what kind of limited company are you going to set up? There are two variations: Private limited companies (Ltd) and public limited companies (plc).

Public limited companies need at least Ā£50,000 share capital, a qualified company secretary, and a minimum of two directors and two shareholders.

And that’s why most people starting a limited company choose to be a private limited company. This designation doesn’t have a minimum share capital figure, and you only need one director and one shareholder.

Can One Person Set up a Limited Company?

One person can set up a private limited company. The director and shareholder hats can both be worn by the same person. For a sole trader making the transition to incorporation, this is usually the best option.

What’s in a Name?

There are several rules you must follow when choosing a name for your limited company. The obvious one is no offensive language. Your application for registration will be rejected if the company’s name includes swear words or otherwise abusive language.

There are three steps to choosing your new company name:

  1. Use the Company Name Availability Checker: This is a free online tool from Companies House. You type in the name you fancy, and it immediately tells you if that name is available to use. It even gives you information about why you can’t use it. For example, if it’s the ‘same as’ or ‘too like’ an existing company name.
  2. Check your proposed new company name isn’t already trademarked: The Intellectual Property Office provides a free online search tool to help you with this.
  3. Make sure you get any permissions necessary to include ‘sensitive words or expressions‘: For example, to use the phrase ‘further education’ in your company name, you need to get a letter or email of non-objection from the Department of Education.

You can’t go any further with your company formation until you’ve got your name sorted. If you need permission to use a word or phrase, you need to build extra time into the process for yourself.

We’ve got more details about naming your company for you in our ‘How to register a business name’ guide.

Assign the Parts

Directors and shareholders are necessary to be a private limited company. Remember, you need at least one of each, but they can both be you. All of these details must be reported accurately to Companies House when you register.

Company Director

To be a company director you must have a UK-registered office address, be over 16, and not have been officially disqualified from being a company director.

As a director of a limited company, you have ultimate responsibility. You must make sure all the company’s accounts are properly recorded and all reports are completed.

Bear in mind that your name and registered office address will be on a public register that anyone can access online.

Shareholders

If your company is limited by guarantee, you’ll have guarantors and ‘guaranteed amounts.’ As these are not-for-profit organisations, we’re not going into those details here.

Your profit making company is ‘limited by shares,’ meaning that it is owned by shareholders who have usually purchased ‘ordinary’ shares. This means that they have voting rights, with one share equaling one vote. And they get dividend payments.

There is no set price for shares, and no maximum number of shareholders. You decide what’s best for your business.

When you register your company, you must include:

  • Statement of capital: How many shares your company is made up of and how much they’re worth
  • Shareholder information: Name, address and at least three other pieces of information from a set list
  • Prescribed particulars: The voting rights and dividend amounts that each shareholder is entitled to

It’s really just the internal share structure of your company. Information that you’d have anyway that you need to present to Companies House under specific, unfamiliar headings.

What Does ‘People With Significant Control’ Mean?

There is a legal requirement to inform Companies House of the people with significant control (PSCs) in your company. This usually means:

  • Someone with more than 25% shares
  • An individual with over 25% voting rights
  • Anyone “who holds the right to appoint or remove the majority of the board of directors”

There are other, less common circumstances in which someone could be a PSC: They are included in the government documentation.

You must have your own PSC register and report the information within 14 days to Companies House. There are several pieces of factual information you need to keep about each PSC at your company, including dates when they first became a PSC. This register must exist, even if you don’t have any PSCs in your business and it can be asked for by Companies House.

There are separate sets of regulations for different business structures and for those with a registered office address in Scotland.

What About Having a Company Secretary?

You only need a company secretary if you are forming a public limited companyā€”private limited companies aren’t required to have one. In case you want to know the basics of the latter business format, they can’t be ‘undischarged bankrupt’ or the company auditor. You can be both a company secretary and company director at the same time.

Golden Rules of Your Company

You need two important documents to start your limited company business. Simply put, they are the official agreement of everyone involved in forming the company and the rules you’re going to operate in. Of course, they have fancy names too!

  1. Memorandum of association: Legal statement that must be signed by all shareholders (referred to as ‘subscribers’) to confirm their agreement to form the company. You don’t have to create one of these documents from scratch, thank goodness. If you register online, it’s there as part of the process. And there’s a template to use on GOV.UK, so you can print one out as part of a postal application. These documents cannot be altered once your company formation is complete.
  2. Articles of association: Your company’s rules, written down and confirmed by all directors and shareholders. Most limited companies use the model articles supplied online. If you want more complex or bespoke articles written, it’s prudent to get advice from a legal specialist.

Am I Going to Be Drowning in Paperwork?

Let’s be honest, this limited company formation business is already far more complicated than being a sole trader, isn’t it? And you’re more than aware that we’ve not even spoken about record keeping and tax filing yet. It’s actually not as bad as you might think.

The key is early and consistent organisation. Know the requirements from the startā€”as listed belowā€”and plan around any official dates. Nothing you don’t already do for your current business. FreshBooks adapts right alongside you so, while it’s going to be a bit different, it won’t be overwhelming.

Your limited company requirements are divided into company records and accounting records.

Company records include:

  • Personal details of company directors, shareholders and secretary (if you have one)
  • People with Significant Control (PSC) register
  • Debentures: Who company loans are owed to and their repayment deadline
  • Indemnities: What your company promises to pay for if they are at fault for something going wrong
  • Share transactions
  • Any mortgages or loans secured against the business
  • Shareholder votes and resolutions

If any of this information is kept at an address that isn’t the business’s registered office, then you must tell Companies House.

Accounting records include:

  • Money coming in and going out of the company
  • Assets and debts
  • Stock takes and stock owned at end of each financial year
  • Everything bought and sold by the company, with details of who to (retail businesses are not obliged to do the latter part)
  • Invoices, sales books, till rolls, and contracts showing money earned by the business
  • Orders, delivery notes, receipts, petty cash books, and everything else showing what the business spent
  • Business bank account statements and other correspondence relating to finance

This means you’ve got everything to file your company tax return, pay your corporation tax bill, and submit your annual accounts.

And breathe! This is an immense list, if you look at it all in one go. But when you really think about it, you’ve got most of the company records already. And the others are ongoing paperwork you’d do anyway.

FreshBooks’ accounting software takes care of most of the accounting records, and the preparation for everything you have to submit to HMRC. Your limited company adventure is supported by the paperwork, not held back. It’s where you’ll track your growth!

Most of these limited company records must be kept for six years, or longer in particular situations.

Penalties and Misfortune

You can be banned from being a limited company director and fined Ā£3,000 for not keeping the appropriate company records.

If your registered office is broken into and business records are stolen, or there is a flood or fire that destroys them, tell the HMRC corporation tax office immediately. Then you have to try and piece them back together again, and state the situation on your company tax return.

Nearly There Now!

There’s not much official stuff left to your company formation, and it’s pretty straightforward.

Registered Office Address

Your business must have a registered office address in order to register as a limited company. This must be an actual UK address that’s in the same part of Britain as your business. This address will be publicly available on the register kept by Companies House.

Special Code

You have to find the correct standard industrial classification code (SIC) for your business on the ‘standard industrial classification of economic activities (SIC)‘ condensed list. Each type of business has a numerical code that you’ll need for your company formation. There is a free search tool, so you don’t have to read through the entire list. Just type in your product or service, and choose the description that best fits your business. Note the SIC code ready for the incorporation application.

Now you’re ready to create your limited company. Get all these details in front of you and calmly work your way through the application form. Then wait for your certificate of incorporation to arrive in the post!


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