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Company Formation
How to set up a Limited Company?
How you set up your business depends on what sort of work you do. It can also affect the way you pay tax and get funding.
01.
You must choose a name for your business if you’re setting up a private limited company. Your name cannot be the same as another registered company’s name. If your name is too similar to another company’s name or trademark you may have to change it if someone makes a complaint. Your name must usually end in either ‘Limited’ or ‘Ltd’
02.
You must appoint a director but you do not have to appoint a company secretary. You need at least one shareholder or guarantor, who can be a director.
03.
Identify people with significant control (PSC) over your company.
A person with significant control (PSC) is someone who owns or controls your company. They’re sometimes called ‘beneficial owners’. A PSC must meet one or more conditions known as the ‘nature of control’. Your register must show which conditions are met.
Most PSCs are those who hold:
- More than 25% of shares in the company
- More than 25% of voting rights in the company
- The right to appoint or remove the majority of the board of directors
You’ll get a ‘certificate of incorporation’. This confirms the company legally exists and shows the company number and date of formation.
You’ll need at least 3 pieces of personal information about yourself and your shareholders or guarantors, for example:
- Town of birth
- Mother’s maiden name
- Father’s first name
- Telephone number
- National insurance number
- Passport number
It costs £50 and can be paid by debit or credit card. Your company is usually registered within 24 hours. However, if you also go for same day incorporation service which will cost you £78 instead of £50.
A limited company is a company ‘limited by shares’ or ‘limited by guarantee’.
Limited by shares: Limited by shares companies are usually businesses that make a profit. This means the company:
- Is legally separate from the people who run it
- Has separate finances from your personal ones
- Has shares and shareholders
- Can keep any profits it makes after paying tax
Limited by guarantee: Limited by guarantee companies are usually ‘not for profit’. This means the company:
- Is legally separate from the people who run it
- Has separate finances from your personal ones
- Has guarantors and a ‘guaranteed amount’
- Invests profits it makes back into the company
You must also keep a register of ‘people with significant control’ (PSC). Your PSC register must include details of anyone who has more than 25% shares or voting rights in your company, can appoint or remove a majority of directors and can influence or control your company or trust
The advantages and disadvantages of a Limited Company.
| Pros | Cons |
|---|---|
| Limited Liability: Shareholders' personal assets are protected, as they are only liable for company debts up to the value of their shares | Higher Set-up Costs: Incorporating a private limited company requires legal documents and registration fees, leading to higher start-up expenses. |
| Tax Benefits: Corporation Tax rates for small businesses are generally lower than income tax rates, and companies can claim a broader range of deductible expenses | Greater Administrative Burden: Extensive reporting and filing requirements, including annual accounts and records of significant control, lead to complex administration.. |
| Credibility and Reputation: Private limited companies are often perceived as more credible and trustworthy, which improves their chances of securing contracts and attracting investment | Public Scrutiny: Business details, including financial information, must be publicly available through Companies House, reducing confidentiality. |
| Protected Business Name: Registration with Companies House ensures exclusive rights to the business name, preventing competitors from using a similar name. | Less Control over Ownership: Shareholders collectively influence decisions, which could lead to conflicting opinions on how the business should be run |
| Flexible Income Options: Business owners can pay themselves in various forms, such as salary, dividends, or bonuses, which can optimize personal tax savings | Regulatory Compliance: The company must comply with a wide range of laws, rules, and regulations, increasing the complexity of maintaining compliance. |
| Easier Access to Growth Capital: The company can raise funds through shares, bank loans, and other sources of investment, making expansion easier. | Limited Share Transferability: Shares cannot be sold to the public, limiting the ability to transfer ownership quickly or secure large-scale capital. |
Seek Professional Advice
Choosing the right structure for your business, whether a private limited company or another option, involves weighing both advantages and disadvantages. This decision can have significant long-term implications and requires careful consideration of your financial and business goals.
At Tx Accountants Ltd, a Team of experts/with experience in Accounting and taxation. Our team of experienced small business advisers and accountants is here to guide you through the process. We provide expert advice to help you determine the most suitable structure for your business. If you choose to set up a private limited company, we can assist you every step of the way, ensuring that the process is seamless and compliant.
For more information, or to discuss how we can support your business, please get in touch with us at info@txaccountants.co.uk. Additionally, explore our tax services and request a free accounting quote.
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Author...
Farhad Kabir
MSc AFA MIPA FCCA
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