1. Is a limited company appropriate for your company?
Choosing how to establish a new firm is a major choice, and forming a limited company is only one of several options.
Even if you're the founder, forming a limited company entails creating a separate legal entity from oneself. Any earnings will be owned by the company (not you), and in order to obtain income, you must withdraw funds as salary, dividends, or a loan.
If you want to establish up as a sole trader instead, which is a popular choice for small business owners, you will have entire control over your company and will keep all profits after taxes. The formation of a single trader is less complicated than that of a limited company. Choosing the single trader option, on the other hand, comes with some risk because you would be financially liable for anything that goes wrong with the business.
So, what are the benefits of incorporating a limited liability company?
You will not be held personally accountable for any financial losses.
The company's name will be legally protected.
It is simple to transfer ownership of a firm.
You may pay less personal tax than if you were a lone proprietor.
Check out our information on the benefits and drawbacks of trading through a limited company to see if it's a good fit for your firm.
2. Is it public or private?
If you decide to start a limited business, you must first decide what type of company you want to form. The alternatives are as follows:
A private limited business (PLC).
A private limited liability business (LTD).
PLCs must have a minimum share capital of £50,000 and at least two shareholders, two directors, and a company secretary. As a result, forming a private limited company is frequently more appropriate for startups, small businesses, contractors, and freelancers (LTD).
3. Select a name for your business.
This is the exciting part! Read the Companies House naming guidelines as well as our handy guide to registering a business name.
4. Establish your limited liability business.
You must register your business with Companies House.
This will entail registering a formal address as well as a standard industrial classification of economic activities (SIC) code, which will identify your company's activity. On the government website, you can look up your company's SIC code.
You can register for Corporation Tax and your firm at the same time. If you register with Companies House separately, you can do it in a different way. You must register for Corporation Tax within three months of starting your business.
After you've registered your company with Companies House, you'll obtain a 'certificate of incorporation', which will include the company number and date of establishment. If you apply online, your company should be registered within 24 hours for a fee of £12.
5. Select a director
A limited firm cannot exist without at least one director.
As the owner of the company, you will almost certainly be one of the company directors. This implies you'll be held legally accountable for the company's records, accounts, and performance. Companies House will make the director's name and personal details public, as well as the service address. If you are concerned about submitting your home address and having it made public, you can request that it not be listed on the register.
It is optional to appoint a company secretary. Company secretaries are frequently employed to relieve company directors of their legal responsibilities, however the person in charge of these responsibilities might also be a director. Keep in mind that the position of secretary cannot be filled by the company's auditor or a 'undischarged bankrupt' (a bankrupt individual who has not been awarded a 'order of discharge' by a court and is thus ineligible to occupy certain public and private posts).
6.Shareholder or guarantor?
A limited company must have at least one shareholder or'guarantor,' who may also serve as a director.
The majority of limited corporations are 'limited by shares,' which means that they are owned by shareholders with specific rights. A shareholder is a person who invests money in a company and obtains a portion of ownership in the form of shares.
Instead of shareholders and shares, companies 'limited by guarantee' have guarantors and a 'guaranteed amount.' This approach is often used by non-profits since it gives personal financial security. In most cases, no revenues are transferred to guarantors. Profits are instead reinvested in the company to help it realise its non-profit goals.
7. Gather the necessary documentation
A'memorandum of association' and 'articles of association' are both required by the Companies Act 2006 for a business founded in the United Kingdom.
Association Memorandum
A memorandum of association is a legal document signed by all of the company's first owners or guarantors. When you register your limited company online, a memorandum of association is instantly generated. If you register by mail, you must create a memorandum of association using the government's template.
Once the company has been registered, you cannot change the memorandum.
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