There comes a time when everyone with a business idea asks themselves the same question: “Should I set up a limited company?”. While this is not the right move for everyone, it does have a number of advantages.
- the “limited” in a limited company refers to limited liability, meaning you can’t be held personally responsible for your company’s financial losses – so long as you behave reasonably and legally
- traditionally, a limited company’s tax position has been favourable to company directors, allowing you to plan your taxes around corporation tax, income tax and dividend tax. This is still possible but there may be less scope due to recent and planned tax rises
- depending on the nature of your business, a limited company – particularly one with strong branding – will often seem more legitimate to customers than a sole trader.
Aside from starting a limited company, the other main business structures include sole trader, partnership and limited liability partnership.
Forming a limited company takes some preparation. Here is something of an A-Z to highlight the main considerations.
You should try to keep detailed financial records from the start. This will make things much easier when it comes to filing your first tax return. We’d advise subscribing to Xero’s automated accounting software. This will save you the hassle of keeping paper records, and allows for powerful reporting and seamless collaboration with us. If in doubt, we’re here to help.
Since a limited company is a separate legal entity, you are not allowed to use your personal bank account for its finances or vice versa. This means you should set up a business bank account as soon as possible. The easiest option is to open a separate account with the bank you already use, but it’s worth shopping around as the service varies from bank to bank.
New companies may live and die by their branding, and your company name is a key component of this. Good characteristics of a name are to be punchy, memorable and differentiating. Obviously, you need to make sure the name isn’t already in use, but there are other considerations, too: Is the web domain name available? What about the Twitter and Instagram handles? Does the name have negative connotations in any other languages or cultures?
Every limited company must have at least one appointed director whose responsibilities include keeping up-to-date records, filing a tax return and paying corporation tax. Anyone can be a company director as long as they are over the age of 16 and are not involved in ongoing bankruptcy proceedings.
Every limited company should consider preparing a written business plan. This will be essential if you want to attract investors or apply for a loan. A good business plan should clearly state your business idea, the problems you may encounter, your goals for the future, and how you will measure your success.
All UK companies need to be registered with Companies House. You can normally register for corporation tax at the same time. As well as registering your company’s address, you must also choose the correct standard industrial classification (SIC) code, which tells Companies House the nature of your business. A list of codes can be found here.
Every limited company must have at least one shareholder who owns a stake in the company. Ordinary shares give directors one vote on company decisions per share and entitlement to dividends. Other share classes are available, which may restrict or enhance these privileges. Anyone can be a shareholder, regardless of age. It is also possible for other companies to become shareholders.
With so much to consider, we can lighten your load by handling your company formation and accounts, providing expert advice to get you set up in the right way, and achieving peace of mind. When you are ready to get started, don’t hesitate to get in touch.