How to set up a limited company
What is a limited company?
- It is a separate legal entity which is quite unlike being self-employed
- It has directors and shareholders
- It has a registered office
- It has a registered accounting year end
- It has company documents
- Memorandum and Articles of Association
- Certificate of incorporation
- Share certificates
- Statutory books
It is extremely easy it is to establish your own limited company, especially if you use a specialist accountant.
Choosing a company name
Most people use their own name e.g. John Smith Associates Ltd, others incorporate part of their address e.g. Carlton House Limited, whilst others are able to think of a more defined title linked to their line of work. Try to avoid using the word ‘consultancy’, because it might tie you down in respect of future work.
Once you have selected a name, you can check it on the Companies House website to see if it is available. There are restrictions on the use of ‘sensitive’ words such as ‘International’ or ‘Association’ and you can find a list of these on the Companies House website.
Once you have checked that the name is free, we strongly recommend that you purchase a matching domain name, even if you do not wish to have a website at the start. You can do this at Heart Internet.
Officers, addresses and documents
- At least one shareholder - The shareholders own the company
- At least one director - The directors are legally responsible for the way that the company is run
- A registered office - Usually the accountants office
- A registered accounting year end - Which can be changed
- Company documents i.e. Memorandum and Articles of Association, Certificate of Incorporation, Share certificates, Statutory books - Your accountant should look after these for you
Although a company secretary is no longer required for a small company, many people still want one to handle paperwork from HMRC and Companies House, and some specialist accountants will act as your company secretary.
If some or any of your earnings will not be subject to the IR35 rules, you should consider the most appropriate allocation of shares taking account of the income of the shareholders and how you would want them to benefit from any dividends that might be paid. As this has potential for tax savings, we suggest you take advice on the best set up for your personal circumstances.
Usually such companies are set up with £1,000 of authorised share capital but only £100 is issued. This means you only have to pay £100 into the business bank in order to own your company.
Rules on company communications
When you are designing your company documentation, you should be aware that the information to be included is regulated by the Companies Act and is as follows:
- The name of the company
- The place of registration of the company, namely England and Wales
- The number with which the company is registered at Companies House
- The address of the company's registered office
- The names either of all the directors of the company, or of none of them, but not of only some of them
Normally, you would print the address of the principal place of business together with email address, telephone and fax numbers at the top of the paper. The last four items listed above traditionally appear in small print at the bottom of the paper, and it is useful also to include here the company's VAT number (preceded by GB) so that the same stationery can be used for invoices.
All company emails and replies to emails are now considered to be headed paper and as such must include items 1–5 above. All company websites must include items 1–5 above, and, if registered for VAT, must also include the VAT number (preceded by GB).
Company bank account
As soon as the company has been incorporated, you will be able to open the company bank account, and we suggest that you approach the bank and obtain a company mandate form at an early stage. Some people prefer to use the bank that looks after their personal account whilst others like to keep business and personal banking separate; the choice is yours.
However, for the sake of speed and convenience we would recommend that you use direct (also called internet) banking.
Keeping accounts is very easy indeed. You need to track your income and expenses. You do not need expensive accounting software; an Excel spreadsheet is all that is required. The key to success is to keep it simple and to get into the habit of updating your records regularly. Your accountant should help you with this.
A PAYE scheme will be established immediately upon incorporation of the company. Directors will be registered as employees with effect from the date of incorporation of the company, and further employees may be added to the payroll (see also Payroll and Self-assessment).
For more detailed advice on setting up a limited company, download the Interim Hub guide ‘Working through a Limited Company’.