You’ve taken the plunge and have decided to start your own business.
Have you gone through the right steps, though? Read our tips to help you make a success of your start-up.
One of the questions you’ll have come across, though, is whether to operate as a sole trader or a limited company.
There are pros and cons to being a limited company. Those that choose to register as one, though, enjoy the limited liability that comes with owning a company, and may also have ambitions to grow the brand, take on staff, and more.
If you’re planning on working as a limited company, how do you register as one? How long does it take, and when can you start working?
More about the limited company structure
All limited companies in the UK have to be registered at the Registrar of Companies – more commonly known as Companies House.
The structure of a limited company is different when compared against a sole trader’s responsibilities.
A limited company is owned by one or more shareholders, and a shareholder’s personal liability is limited. The company itself is a separate legal entity to the and shareholder owners and has separate finances to those of those shareholders.
You can set up a limited company by yourself or with others. Limited companies can be ‘limited by shares’ or ‘limited by guarantee’.
Setting your limited company up through Companies House
Ready to set up your limited company? Choose a name, an SIC code, one or more directors, a company secretary, one or more shareholders and identify those persons to have significant control over the company. You also need to prepare documents setting out how the company will be run. These are called the memorandum and articles of association. Be aware that there are some minimum requirements that you have to meet first:
- Your limited company must have at least one director, and all directors must be at least 16 years old and not disqualified from acting as a director.
- At least one share must be issued at the time of incorporation.
- At least one actual person – as opposed to a company or other entity acting as a person – must be appointed as director.
- The company’s registered office must be in the UK.
- Limited companies in Scotland or Northern Ireland must register their office in their respective countries, while companies in England and Wales can choose either England or Wales.
- The company name cannot be the same as or too similar to another company already registered at Companies House.
Choose a name
A name search should be conducted on the company register and on the trademarks register to check that it is not already in use. Names cannot be the same as (which includes here the only difference is in punctuation, special characters, where there is similar appearance or meaning or commonly used words or character), too like another name, offensive or contain a sensitive word or expression. The name cannot suggest a connection with government or local authorities without prior permission being obtained. The name must end in ‘Limited’ or ‘Ltd’ or the Welsh equivalent if the company is registered in Wales.
What is an SIC code?
An SIC code provides Companies House with a description of the nature of a company’s business and a list is provided on the Companies House website. An SIC code has to be included as part of an application to register a company.
Who is a person with significant control?
A PSC owns or controls the company and there can be more than one. Usually, a PSC is someone who owns more than 25% of shares in the company, 25% of the voting rights or the right to appoint or remove the majority of the board of directors of the company. Details of the PSC must be recorded and notified to Companies House.
What are Memorandum and Articles of Association?
A memorandum of association is a legal statement where the first shareholders agree to form the company. The articles of association set out the rules about running the company which have been agreed between the shareholders, directors and, if there is one, the company secretary. Templates for both of these documents can be found on the Companies House website.
How much does it cost to register a limited company?
Limited companies are a popular option because they are relatively simple to set up.
Limited companies can be registered directly with Companies House online. It costs £12 to do so online, with the company typically set up in 24 hours, ready to trade.
By using the service at Companies House, you will be registered for Corporation Tax at the same time otherwise the company must be registered for corporation tax within 3 months of being set up. The online system can also be used to register for PAYE. A company is also required to register for its own Government Gateway user ID.
Paper applications take longer, cost £40 (which is paid by cheque) and must be used if the word ‘limited’ is not going to be used in the company name. Several forms need to be completed which make up Form IN01. A formation agent or accountant can help you set up your limited company.
Once the company is set up, you will receive a Companies House Certificate of Incorporation.
What about my registered office?
As per the Companies Act 2006, you’ll be asked to provide three different addresses when setting up a limited company: a registered office, a trading address and a service address.
- A registered office address is the ‘official’ address for the limited company. Official and legal documents should be sent here. It must be a real physical location and will be made publicly available on Companies House. It should also appear on client correspondence.
Registered offices can be at the place of business of a trusted partner, such as your accountant or solicitor. PO Boxes and virtual offices can also be used, but mail must be physically presented to someone who can accept it on your behalf.
If your registered office is anywhere other than your home, then your company name must be visible outside the place of business.
- A trading address can be different to the registered office address. This is simply, the location of the office or trading location and is where a company will want correspondence from other businesses to be sent, such as mail from suppliers, banks and other entities.
- A service address, if different to the registered office and/or trading address, has to be supplied by every appointed individual in your company, from directors to shareholders, people with significant control, secretaries and others. This is the address where company officers can be contacted – it can be the same as your registered office should you wish.