How To Set Up A Limited Liability Company Uk

How to gear up a limited company in the UK

Updated 24 March 2022

6min read

Setting up a limited company

When y'all first set in business it'll most likely exist as a sole trader, which ways yous're essentially self-employed. However, later on you've been trading for a while it may make more than sense to set up a private express company. The germination of a limited company (Ltd) is quite straightforward, merely it's of import to know how your legal position, financial arrangements and other responsibilities will change.

What is a limited company?

A limited visitor is a business concern structure that is a divide legal and financial entity from the person or people running it (i.eastward. the company directors). The principal advantage of this is that a company has limited liability. Limited liability means that if your business fails or is sued, you are only liable for the face value of your share in the business. Beyond that, your personal assets are protected.

A limited company has one or more directors, has its ain bank account(due south), pays its own kind of tax, can be bought and sold in the form of shares, and must be registered at Companies House.

Why set up upwardly a limited company?

The big advantage of a limited company is that information technology ensures express liability. The company is a separate legal entity (it has its ain bank business relationship etc.) so as company director, yous can't lose more than the face up value of your share in the business. This overcomes the main disadvantage of being a sole trader, which is that your personal finances aren't fully separated from your business finances. This means that if your sole trader business organization runs into difficulties or is sued, your personal assets would be at chance. With a express company, your personal assets are protected.

Some other good reason for setting upwardly a company is that companies pay a lower rate of taxation on their profits.

When should I modify from sole trader to limited company?

Being a sole trader is a adept mode to exam your business model, check that information technology works and refine information technology. There are no registration fees and very piddling admin, and y'all make all the decisions without having to consult other directors or shareholders. Notwithstanding, you pay income tax on your profits rather than corporation tax, and yous are personally liable for the business organization debts. This means that as your turnover increases, information technology can make more sense to form a private limited visitor instead.

Forming a visitor also opens up more ways to fund your business. Every bit a sole trader you can accept out business loans from banks, but you cannot get individual equity funding (i.e. selling shares in your business). With a visitor, you can do either or both.

Can I fix upward a limited company on my ain?

Yes, you can fix a company in which you lot are the sole employee and but manager. Most contractors choose to operate as companies, every bit information technology reduces the chance that their clients will accept to care for them as employees for revenue enhancement and legal purposes. It also protects contractors from heavy personal losses if they are sued by clients. Another option for contractors is to operate out of an umbrella company, where the company adminstration is washed for them.

The 7 steps to setting up a limited company

Here are the key stages involved in forming your company.

1. Cheque it's right for you

Make sure a company is the nigh suitable structure for your business. You tin can cheque the pros and cons here.

ii. Choose your company name

Your company name must exist bachelor (i.e. unique, and not also similar to an existing visitor). The name must not brand faux implications (e.g. imply regulation or approval by a body where none exists) and must not exist offensive. Annotation that yous can trade under a different name, merely y'all tin can't add 'Ltd' to this name if it isn't your registered name.

iii. Appoint at to the lowest degree 1 manager

Your company must have at to the lowest degree 1 managing director (i.due east. you) but can accept several. Directors collectively agree decisions for the company, must follow its rules and take ultimate responsibility for filing the accounts and ensuring the company pays its corporation tax.

You tin also appoint a company secretary, though this isn't compulsory. The visitor secretary ensures that the directors' decisions are carried out, ensures that the company follows regulatory requirements, and handles other company administration duties.

iv. Make up one's mind who will be shareholders

A company must have at least one shareholder, who can be a managing director. Shares tin exist divided among the directors (non necessarily evenly). Shareholders typically vote on decisions at shareholder meetings, with 1 share equalling one vote, then majority shareholders have more influence. A shareholder with more than 25 per cent of the shares is a 'person of significant control' (PSC).

5. Create your company documents

Your company must have certain documents that recognise its formation and ready out how information technology is to be run. These are:

The memorandum of association
This is a legal statement signed by all initial shareholders stating that they agree to form the company together.
The articles of association
These are the rules on how the company is to be run, agreed by the shareholders, directors and company secretary. You can apply model articles of clan or write your ain.

vi. Ostend what records you need to keep

You volition need to keep records of all significant details almost the company, including its PSCs, as well every bit all its accounting records. Records must be kept for at least 6 years. Find out more than on the government's website.

7. Register with Companies House

Finally, register your company and its official accost at Companies House. Be sure to select the right SIC code, equally this specifies the nature of your business concern. You can register for corporation tax at the same time.

How to annals a limited company

You can annals your company with Companies Business firm online or by post using grade IN01. If you lot choose non to use 'limited' in your company proper name y'all must register by post. The visitor will normally exist registered within 24 hours of receipt of your application, if you lot do information technology online. Postal registrations can take up to x days.

One time you've registered your company, a ten-digit Unique Taxpayer Reference (UTR) will be posted to your company accost within a few days. You'll need this, and so proceed it safe. You will as well receive a 'certificate of incorporation', confirming that the company legally exists. This document too includes the company number and date of formation.

How much does it cost to register a company?

It costs £12 to annals your visitor online. Postal registrations unremarkably cost £twoscore, though you tin can pay £100 for a same-day postal registration if y'all wish.

What taxes will my company pay?

Your limited company must pay corporation tax on its profits. In one case your company is registered with Companies House, you must register it for corporation tax inside iii months of it becoming agile (you can do both registrations at the same time). Being active means that your business is providing services and receiving income - this is also known as 'trading'. If you lot're unsure if this applies to your company, bank check with your auditor. If you annals too late for corporation tax, you could receive a fine.

You will need to file a company tax render annually, by the deadline given to y'all by HMRC. You'll too need to register for PAYE if the company pays any salaries (including your own as Director).

Your company may also need to register for VAT, or you may wish to practice this even if you don't have to. Find out more about tax for small businesses.

How will I get paid through my limited company?

There are ii main ways in which you as manager can take an income from your company. You lot tin can take a salary, or you can pay yourself dividends out of company profits. Nearly directors choose a combination of the 2, as this can be near revenue enhancement-efficient.

The advantage of dividends is that less tax is due on them. Yet, you tin can simply pay them out of profits, and there are some other drawbacks too.

The reward of a salary is that it entitles you to various other benefits (such every bit the state pension and maternity/paternity benefits) and doesn't require the company to exist in profit. Yet, bacon is taxed at a higher rate. Find out more about taking an income from your company.

Legal responsibilities of running a visitor

As a managing director yous'll have some legal responsibilities, including managing accounts and informing other shareholders if you lot stand to benefit personally from whatsoever company transactions. You can of course appoint an accountant and/or visitor secretarial assistant to perform these tasks on your behalf – just remember that the cadet stops with you.

If you're setting upward a company from scratch (i.eastward. you're not already established as a sole trader) then you may besides like to consult our guide to starting a business.

Yr-end reporting for your company

At the end of your fiscal year you lot must study key data to HMRC and Companies House. This ensures that the visitor pays the tax it owes, and too provides accurate data about the company to its shareholders, investors, creditors and the general public. Notice out more about financial yr-cease reporting.

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