Setting up a Limited Company: A Simple Guide

Are you registering your business as a limited company? This quick and easy guide will provide you with key information for setting up a limited company as well as its many advantages.

As a new business owner — particularly during the period of setting up your company — you’ll undertake several important tasks, such as getting a business phone number and organising your physical or virtual office. However, setting up your company as a limited company is arguably the most important task you’ll undertake, as this brings with it new responsibilities.

So, to help make the task easier here’s everything you need to know about setting up a limited company:

What Is a Limited Company?

A limited company is a company that is incorporated and issues shares to its shareholders. It is usually managed by directors — also known as “company officers”. Every limited company must have at least one director and is run by one or more of its owners or directors.

GOV.UK defines a limited company as “a company limited by shares or limited by guarantee company”.

  • Limited by shares: These businesses usually make a profit. This means the company:
    – Has shares and shareholders
    – Is legally distinct from those who run it
    – Has separate finances from its owners and directors
    – Can retain the profits it makes after paying tax
  • Limited by guarantee: These businesses are usually “not for profit”. This means the company:
    – Has guarantors and a “guaranteed amount”
    – Is legally distinct from those who run it
    – Has separate finances from the owners or directors
    – Has profits invested back into it

How Many Types of Limited Companies Are There?

There are two types of limited companies: “public” or “private”.

The main difference between the two is a private limited company does NOT publicly trade shares and is limited to a maximum of 50 shareholders.

Private Limited Company

  • Most UK companies are private limited companies (LTD).
  • Private limited companies are legally distinct entities with separate assets, liabilities and profits.
  • Limited liability covers shareholders’ finances. Their liabilities are limited to the value of their shares.
  • The company shares cannot sell shares to the general public
  • Private companies have to file specific legal documents, including Articles of Association and a Memorandum of Association — both of which form the company’s constitution.
  • A secretary is optional in a limited company.
  • A limited company must submit an annual return to Companies House.
  • An annual general meeting (AGM) — a yearly meeting between shareholders to discuss progress — is not a requirement for private companies.

Public Limited Company

  • Similar to private limited companies, a public limited company (PLC) has separate assets, liabilities and profits.
  • Public company shares can be sold and traded to the general public. Subsequently, these shares are listed on the stock exchange. Only PLCs can raise capital from such public investment.
  • Public companies must also possess Articles of Association and a Memorandum of Association.
  • Directors must prove the company has a minimum £50,000 allotted share capital. This proof takes the form of a Certificate for Commencement of Trading, obtained from Companies House. 25% of this share capital must be paid upfront.
  • At least two company directors and a qualified company secretary are required.
  • A public company must hold an AGM.

Step-by-Step Guide to Setting up a Limited Company

  • Choose a company name — check if your desired company name is available here.
  • Organise your board and choose a company director (not necessarily a company secretary).
  • Decide who the shareholders or guarantors will be — remember, you will need at least one shareholder or guarantor to be a director.
  • Prepare important documents such as a “memorandum of association” and “articles of association”.
  • Check the records you’ll need to keep such as company details and financial/accounting details.
  • Register your company with Companies House and register your official business address.

What Are the Advantages of a Limited Company?

  • Credible company image: Increase your credibility and potential customer base with a limited company status. Unlike a sole trader, limited company registration exudes a sense of organisation and legitimacy.
  • Better tax implications: In a private limited company, directors and owners can pay themselves through a PAYE salary, which can be topped up with shareholder dividends after paying corporation tax. So, private limited companies can benefit from tax savings not available to sole traders.
  • Protect your company name: Other companies cannot use your brand name, or use anything too similar when you register as a limited company.
  • Raise additional capital: As a limited company, you can raise money by selling shares. Shares also protect investors from any company failures, as their risks are limited to the value of their shares.
  • Pension benefits: Unlike those running a self-employed business, a limited company can fund its employees’ executive pensions as a legitimate business expense.

If you want to scale your company exponentially, then only a trusted and credible company image will match your goals. Setting up as a limited company will give you that. So, prepare yourself for the registration process and begin setting up a limited company today.

 

For more information on registering your company and gaining invaluable expert advice, contact Mint Formations and find out about setting up a limited company.

Want to register your UK limited company today?


Raj co-founded Mint Formations with business partner Andy Tree in 2017. Mint formations is established to nurture small UK businesses and enable exciting new opportunities for quick growth. As a successful entrepreneur, Raj knows how to start and run a business. He currently resides as a board member of seven successful companies across the world. He is best known for founding Integra Global Solutions, specialists in robotics, automation, and business process optimisation.

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