How is a limited company formed, and what documents do you need?
By Adele Ross, Last updated: 2022-07-25 (originally published on 2021-04-07)
Limited company formation requires a lot more detail than any other registration for businesses in the UK. The registration requirements are stricter, and it takes more time to do it. There are more people involved in the company’s direction, and there are more employers in most of these companies. Unlike smaller registered businesses, the registration process takes longer, with registration in various avenues on the HMRC platform. There are three business structures available for individuals who would like to work for themselves or own a business or company.
Self-employed: responsible for their income, they do not work for anyone besides themselves, and they are accountable for their tax returns. They do not have to register as a company or a business and can still receive government funds if they do not meet the required amount to qualify for registering as a sole proprietor. You are still considered a sole trader even if you have not notified and registered with HMRC or customs.
Sole proprietorship: can register as a sole proprietor after earning 1000 pounds or more. This individual business owner can use their name to register as the name of the business. They do not have to submit the name before registering the business. Their business cannot be listed as a company. Unlike a self-employed individual, the business’s seriousness is certified with the registration and opens the owner up to the possibilities of trading with both. The downside of this kind of registration is that the business owner will be held entirely liable for the business’s loss and will need to pay back any private investors on their own.
Limited company: this is a group of individuals who contribute an equal portion towards its start-up. They are all equally responsible for the company’s finances and are either directors, shareholders or guarantors. All the shareholders do not have to have any direct involvement in the company and can influence decisions from the outside. The company itself is a separate company from its owners, leaving them with no financial liabilities if the company does not survive. Payment to directors and shareholders can be done as dividends and can be done over a more extended period than a regular employee.
Limited companies do have the advantage of not being held liable for the business’s failure, and their assets won’t be affected if it forecloses.
Starting a Limited Company: Choosing a Name
Choosing a name for your company can be challenging because so many businesses have the same name. When you have decided on a name for your company, you will need to run that name through the company name checker to verify that it does not belong to someone else’s company. Remember to keep the name simple and effective and register with the Department of Business, Energy and Industrial Strategy (BEIS) if you intend to add accreditation to the title.
You need to decide on the location and make sure that your company is trading in the same country that it is registered in.
Shareholders and Directors
The most crucial factor that you would need to explore when you want to start a limited company is selecting who you would like to do business with. Your business partners need to be people you can rely on, understand the dynamic of what you are trying to achieve, and what the goals are moving forward as a unit. You need to have a team that is well established in their duties and can perform them effortlessly even under pressure. As a company, you want to iron out the obstacles with everyone on board simultaneously so that the people you have selected to go into business with must have the same ethics that you do. There doesn’t have to be an exact equal contribution to the initial business model, and in that way, you can determine who the directors are and who shareholders are. You need to choose the following:
Directors: they are responsible for the company’s corporate policies. As a company, there will need to be a minimum of 2 directors. They monitor the company’s progress and goals and take care of the company’s business affairs.
Shareholders: an individual or institution who has bought shares in the company and forms part of a public or private corporation. They pay tax on their dividend that is paid out either annually or quarterly.
Guarantors: They are the financial insurance you will list if you cannot do things like paying your rent. They need to be between the ages of 21 and 80 and be a parent or a relative. They would also need a good credit history to qualify and be younger than 80 at the end of your loan term.
Secretarial staff: the responsibilities include making appointments, answering calls and emails and maintaining mediation between directors and the team. They are also responsible for setting up documents and delivering them to the relevant parties.
There are no limits to the number of shareholders or directors you have in the company, but at least one person is a director. Only having shareholders would mean that no one runs the company. Shareholders do not have to physically be in the company to own their shares and purchase them as a corporation or private equity. They can hold one share or hundreds of shares, depending on the company’s size and the number of claims made available for public purchase.
A memorandum of association is required to show that all parties involved are agreeing to their respective positions within the company. It is automatically created for you when you register online. You also need to identify the Person with Significant Control (PSC) and inform the company’s house of all the persons with a PSC position. You can have someone else in that position alongside yourself, but the information needs to accompany the registration. These are people who have more than 25% of the shares and voting rights. They do not have to be directly on board in the company and can influence company negotiations from an outsider’s clear perspective.
Articles of association are also a requirement and legally binds all the shareholders to the company. You may want to ask a solicitor to check if everything is correct if you start the articles from scratch.
Form IN01 serves the purpose of manually registering a limited company formation. It costs £12 and can be done online. This is for parties who want to write their company as an LTD. Any other forms of registration would have to be done via post. Online registration can take 24.
This form notes the information of all the directors and the company’s registration office. All changes will be listed on this form, even if you are using the standard articles.
You could register a company even if you are not a UK citizen or live in the UK. As long as the company is registered to an address in the United Kingdom, it will be accepted.
Corporation tax and PAYE can be registered simultaneously with the Company’s house. You have three months to register if you have used the post or third-party software, and your registration would have to include buying, renting property and employing staff. Your company will need a Government Gateway user ID and password to register for corporation tax. An ID and password can be set up for you online if you do not have one already.
You will also need your companies Unique Taxpayers Reference and can request this online to register with Companies House. As a limited company’s shareholder, you are likely to pay much less personal tax than a sole trader would. You can pay yourself in dividends that are not registered with the National Insurance Contributions (NIC).
Author bio: Adele Ross is a business owner and content writer. I enjoy searching for information and reading about historical events and origins. I also enjoy cooking and spending time at the beach.
This article does not constitute legal advice.
The opinions expressed in the column above represent the author’s own.