Setting Up A Limited Company

WHY GO LIMITED?

A combination of reasons usually leads people to set up a limited company.

For those going it alone for the first time, the big motivation is to be their own boss and have the freedom to work in a way that suits their lifestyle. For people who are already self-employed, the idea of giving their careers longer term foundations and greater stability is a big factor. They want to be taken more seriously by corporate clients, have a stronger focus for business building, possibly creating a team to enable growth. For many individuals, the limited company is the perfect vehicle for fulfilling these ambitions.

Having a limited company also gives you the opportunity to operate with greater tax efficiency. For many small businesses it can be the best trading vehicle and also opens up better access to pension and funding options.

And of course, a limited company offers limited liability. This means that provided you operate legally you will not be personally liable if the worst happens and your business fails.

Benefits include:

• Limited liability
• Credibility and prestige
• Tax efficiency
• A platform for growth
• Financial stability

DIRECTOR RESPONSIBILITIES

As a director of a limited company, you must follow the rules of the company as set out in the company’s constitution (see the next section for more details).

In particular, directors have legal responsibilities which they must be fully aware of, understand, and comply with.  QAccounting have provided a guide in this area entitled: Understanding Limited Company Director Responsibilities Guide.

And if you haven’t already read and understood the content of this, and you are either already a director of a limited company, or considering becoming one, then please do so without delay!

They have the flexibility to commission other people to provide professional advice and delegate the performance of certain functions on their behalf, but ultimately, they are still personally responsible for the company’s records, accounts, tax returns, and performance within the law. And if they fail to carry out these responsibilities they can be fined, prosecuted, or disqualified as a director.

It is therefore essential to manage and control the company in a responsible and compliant manner!

NAMING AND REGISTERING YOUR COMPANY

There are a number of steps that must be followed to setup a new limited company including:

CHECK IF SETTING UP A LIMITED COMPANY IS THE MOST APPROPRIATE STRUCTURE FOR YOU

There are many different business structures and each is suited to a different type of business and way of working.  So, the very first step is always to consider if a limited company is the most appropriate business structure for your business plans.

Other potential business structures include:

• Operating on a self-employed basis as a Sole Trader
• Setting up a Partnership or Limited Liability Partnership
• Setting up an Unincorporated Organisation or Social Enterprise
• Setting up a special type of limited company called a Community Interest Company (CIC)

As one of the UK’s premier online accountants we service each of these areas and we can discuss your requirements in greater detail to help you decide which may be the most appropriate structure for your business.  And in addition to this guide which explains the steps and thought processes that you have to go through to setup a limited company we have also produced a number of other guides comparing these different structures.

CHOOSING A COMPANAY NAME

There are certain rules that must be followed, such as ensuring that the name:

• Isn’t the same or similar to an existing company – If a new company name is too similar to that of an existing company, then the existing company representatives may complain and request that the name be changed.  Which could be a devasting, complex, and costly process later down the line.Although, these rules can be relaxed if permission is first obtained from the other company whose name is similar to the one you want to use, or if the new company is part of the same group of companies (and therefore permission isn’t required).
• Isn’t offensive – You cannot include words in the name which are offensive or similar in nature to words which are offensive.
• Doesn’t use certain reserved words – There are also other reserved words which cannot be used such as government organisation names, or using company legal pseudonyms which are not appropriate to the business structure being created such as PLC, LLP, etc.

Companies House provide a “name checker” functionality to assist with this process HERE (https://find-and-update.company-information.service.gov.uk/company-name-availability ).

And it is also good practice to similarly perform a trademark search to verify that there aren’t any trademarks with the same or similar name.

CHOOSE THE DIRECTORS AND COMPANY SECRETARY

A company secretary is optional, often not required, and can be the same person as one of the directors.  Where they are appointed, this is typically to assist the directors with their responsibilities, such as ensuring that Companies House disclosures are kept up to date.

But at least one or more directors must always be appointed who are over 16, and haven’t previously been disqualified from being a director.  Directors must provide their date of birth, nationality, home address, and a service (correspondence) address.  A service address will be recorded at Companies House as publicly available information.  So, if you do not wish for your home address to be recorded in the public records then another genuine correspondence address must be supplied (for instance the company’s registered office address).

At least three pieces of additional “personal information” must also be collated by the person or agent performing the formation to allow them to the complete the registration process which will not be disclosed in the public record.  This can any of the following:

• town of birth
• mother’s maiden name
• father’s first name
• telephone number
• national insurance number
• passport number

CHOOSE THE SHAREHOLDERS OR GUARANTORS

A company must have at least one shareholder, or at least one guarantor, dependent upon whether the company is limited by shares (the most common option), or guarantee.  Shareholders / guarantors must provide the same registration information as Directors, including the three additional pieces of personal information.

The value, number, allocation, and rights of the shares to be issued must also be stipulated.  Shares are grouped by “classes” which dictate the rights that attach to them, including for instance:

• Dividends rights
• Whether the shares can be sold
• Voting rights

With regards to companies limited by guarantee the guarantee value invested must be disclosed.

IDENTIFY PEOPLE WITH SIGNIFICANT CONTROL (PSC)

There are some fairly complex rules which define a person with significant control, but in simplistic terms this can normally be thought of as anyone who holds at least 25% of the voting rights in the company.  People with significant control provide the same registration information as Directors, including the three additional pieces of personal information.

The associated shareholdings and voting rights must also be disclosed.

PREPARE COMPANY CONSTITUTION DOCUMENTS

This includes the Articles of Association (AOA) and the Memorandum of Association (MOA).  The Articles of Association are the rules which dictate how the company is run, and the Memorandum of Association is a legal document signed by all shareholders / investors to establish the company.

Companies House does have “model” (i.e. standard format) documents which can be used in most cases.

Although if you need to setup a Community Interest Company (CIC) not-for profit organisation then more specialised documents are required which include “Asset Lock” provisions to ensure that profits are either retained in the business or used for community purposes.  Dividend payments while allowed are therefore also restricted.

Legal advice can also be sought to create custom documents with specific rules that you would like a company to apply.

REGISTER THE COMPANY

As part of the registration process you will have to stipulate a Registered Office Address (ROA) for the company which is in the same country where the company is to be registered (i.e. a Scottish ROA in Scotland, an English ROA in England, etc).  Similar to other service addresses discussed above this address will be recorded at Companies House as publicly available information.  So, if you do not wish for your home address to be recorded in the public records then another genuine correspondence address must be supplied.

Note however, that it is permissible to use an agent’s address for these purposes, and QAccounting offer a registered office address service to all new and existing clients for both privacy purposes, and also to provide a professional address to which company documentation will be sent and then distributed to you electronically.

In addition, a Standard Industrial Classification (SIC) code or codes which most closely aligns to the trade(s) or your business must be selected and disclosed.

Once all the above information has been collated the company can then be registered.  This can be done by you at Companies House online or by post, by a formation agent, or your Accountant (such as QAccounting)!

Once processed, Companies House will send a copy of the Certificate of Incorporation (COI) to the company’s registered office address as evidence that the registration process is now complete and that the company now exists as a separate legal entity!

INFORMING HMRC

The Companies House formation process has now been extended to allow notification to be made to HMRC at the same time that a company is created.  And this is a useful function if you plan to start trading immediately through the limited company.

Alternatively, if you plan to start trading in the future then you must remember to notify HMRC within three months of starting any business activity.  As they need to register the business for the purposes of paying Corporation Tax.

Once registered HMRC will send you the company’s Unique Taxpayer Reference (UTR) along with information on how to complete and file your company tax returns and pay Corporation Tax.

While registering for Corporation Tax it is also good practice to register for the other taxes which the business and you as a Director will need to pay.  This includes:

• Registering the business as an employer – So that it run period payroll for the staff and Directors, deducting PAYE / NIC at source for onward payment to HMRC.
• Registering the Business for VAT – This may not be required immediately as a business is only required to register for VAT once Turnover levels exceed certain thresholds.  However, it may be desirable to register for VAT voluntarily, for instance if:
  • The business incurs large values of purchases which include Input VAT which can be reclaimed
  • Where the company may benefit from applying the Flat Rate VAT Scheme as the end client is VAT registered.
• Registering the Director for Self-Assessment – It is a requirement for Directors to register for self-assessment.  In addition, where it is anticipated that they may receive dividends (over £1,000 at current rates), benefits in kind instead of employment income, or are in receipt of child benefit which must be rapid during a tax year, then this needs to be reported to HMRC in their self-assessment personal tax return.

And you are now in business as a limited company!

OPEN A BUSINESS BANK ACCOUNT

When you open a limited company, you are legally obliged to have a separate business bank account through which all of the business’s transactions will be recorded. It is advisable to do this as soon as the company has been created.

Although you will normally require a copy of the company’s new Incorporation Certificate (supplied by Companies House) to do this in order to evidence the existence of the company for the bank, so you will need to wait until this is received.

ARRANGE BUSINESS INSURANCES

Most businesses require to have insurances in place. Even if not asked for, it’s good practice to hold certain policies to protect you and your new business.

QAccounting can facilitate the following on a “non-advice” basis as an authorised agent of QDOS Broker & Underwriting Services Limited and underwritten by HCC International Insurance Company Plc. Subject to policy terms and conditions:

PROFESSIONAL INDEMNITY INSURANCE (PII)

This type of insurance policy will cover you if – through error or omission in your services – a loss is caused to a third party. Without this in place, many organisations will not engage with your company.

PUBLIC AND EMPLOYER’S LIABILITY (PL AND EL)

This protects you against claims made against you when you are held responsible for the death or injury suffered by third parties or employees or damage caused to third party property.

TAX ENQUIRY INSURANCE (TEI)

This insurance policy covers the costs of professional representation in the form of legal cover and defence for a range of potential HMRC enquiries.

Note – This does not cover tax liabilities.  The MSC Legislation prevents accountants from offering tax liability cover to personal service companies.  So, where this applies to you, it is always important to ensure that any accountant you use is compliant in this area and does not provide this service!

APPOINT AN ACCOUNTANT!

Although you are not obliged to appoint an accountant, it is always good to have professional advice and help!  Most business owners do, in order to lighten the burden of running the financial and taxation side of the business and to provide financial expertise.

Make sure you find a firm of accountants who understand the nature of your business, and have the necessary expertise you require.  You will want to appoint people who you like and trust, and who can offer a wider range of services to you as your business expands and more options for your personal financial future open up.

GOING LIMITED WITH QACCOUNTING

We provide an in-house Company setup service for the benefit of all new and existing clients.

The only thing you have to do is choose your company name, and provide the associated support documentation we require to supply to Companies House and HMRC as we request it and we can take care of everything else for you.  Making the above processes as easy and stress free as possible.

We are completely in tune with the needs and concerns of people who have chosen this career path and our services are designed to make life easier for you, to help you maximize your business opportunities and earnings, while operating efficiently within the regulations and tax laws that affect your business.

We look forward to hearing from you today!

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