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How to set up a limited company

accountancy franchise
Sumit Agarwal Sumit Agarwal 14 May 2024 Company formation

How to set up a limited company in the UK | Step-by-step guide

Setting up as a limited company is an important step for many businesses in the UK. It offers valuable benefits like limited liability protection, raising capital, and a more tax-efficient structure than being a sole trader. However, the process of establishing a limited company can seem daunting at first.

In this blog, we'll guide you through the key steps to set up a limited company in the UK. We'll cover everything from choosing the right company type and name, to appointing directors, registering with Companies House, and fulfilling your ongoing tax and legal responsibilities.

We aim to make the process as straightforward and easy-to-understand as possible, so you can focus on growing your new business venture. Whether you're a first-time entrepreneur or an experienced business owner, this comprehensive guide will equip you with the knowledge to successfully set up your own limited company.

What is a limited company?

A limited company is a unique type of business structure in the UK. It is considered a separate legal entity, distinct from its owners or directors. This means the company can enter into contracts, own assets, and even be sued independently.

The key benefit of a limited company is the limited liability protection it provides for the owners. Their liability is limited to the amount they have invested in the company. This shields their assets, such as their home or savings, from any debts or liabilities the business may incur.

This separation between the company and its owners is a crucial feature that sets limited companies apart from other business structures like sole proprietorships or partnerships. It allows the business to operate with greater autonomy and protection for the individuals involved.

Why set up a limited company?

There are several key benefits to setting up a limited company in the UK:

Limited liability protection

One of the primary advantages of a limited company is the limited liability protection it offers to the owners and directors. As a separate legal entity, the company's debts and obligations are distinct from those of its shareholders. This means that the personal assets of the owners, such as their homes or savings, are protected in the event the business faces financial difficulties or legal issues. This limited liability provides peace of mind and financial security for the business owners.

Ability to raise capital

Setting up a limited company allows the business to raise capital more easily by issuing shares. This can be particularly beneficial for companies looking to expand, invest in new projects, or fund their growth. Investors are often more willing to provide funding to a limited company, as they can become shareholders and have a direct stake in the business's success.

Tax-efficient structure

A limited company structure can be more tax-efficient than being a sole trader. Limited companies are subject to corporation tax on their profits, which is generally lower than the personal income tax rates paid by sole traders. Additionally, limited companies can take advantage of various tax deductions and allowances, such as claiming business expenses and capital allowances, which can help reduce the overall tax burden.

Improved Credibility and Professionalism

Establishing a limited company can improve the credibility and professionalism of your business. Having a separate legal entity with a distinct name and brand can help build trust with customers, suppliers, and other stakeholders. This can be particularly important for businesses looking to secure larger contracts, attract investment, or operate in more competitive markets.

By setting up a limited company, business owners can enjoy the benefits of limited liability, access to capital, tax efficiency, and increased credibility. These advantages can be crucial for the long-term success and growth of a business, making the limited company structure an attractive option for many entrepreneurs and small business owners in the UK.

How to set up a limited company in simple steps

There are several key steps involved in setting up a limited company in the UK. Let's go through each one in detail:

Choose the type of limited company

The first decision you'll need to make is the type of limited company structure that best suits your business. The main options are:

  • Private company limited by shares: This is the most common type of limited company, where the owners' liability is limited to the amount they have invested in the company's shares.
  • Private company limited by guarantee: This structure is often used for non-profit organisations, where the members' liability is limited to a pre-agreed guarantee amount.
  • Limited liability partnership (LLP): An LLP combines the flexibility of a partnership with the limited liability protection of a company.

Carefully consider the pros and cons of each structure to determine which one aligns best with your business goals and needs.

Choose a company name

Selecting the right company name is an important step. The name must be unique and cannot be the same as an existing company or trademark. It must also end with the word "Limited" or the abbreviation "Ltd."

When choosing a name, make sure it is memorable, reflects your business activities, and is available for registration. You can check the availability of a proposed name on the Companies House website.

Appoint directors and a company secretary

Every limited company must have at least one director. This person is responsible for the overall management and decision-making of the company. You can also choose to appoint a company secretary, although this is not a legal requirement.

The directors and company secretary will be registered with Companies House and their details will be publicly available. Consider carefully who you want to take on these roles and ensure they understand their legal duties and responsibilities.

Prepare the memorandum and articles of association

These are the two key documents that outline the company's rules and the responsibilities of the directors. The memorandum of association sets out the company's name, registered office, and the business activities it will undertake. The articles of association cover the internal management and administration of the company.

You can either draft these documents yourself or use a template provided by Companies House or a professional service.

Register the company with companies house

The final step is to register the company with the UK's registrar of companies, Companies House. This involves submitting the necessary forms and documents, either online or by post. The process typically takes 8-10 working days to complete.

Once registered, your company will be issued a unique company number and will be officially recognised as a legal entity.

Obtain a registered office Address

Every limited company must have an official registered office address, which is the address where the company's legal documents will be sent. This address will be publicly available on the Companies House register.

You can use your home address or rent a registered office address from a service provider.

Register for taxes

The final step is to register the company for various taxes, including:

  • Corporation tax: The company will need to register for corporation tax and file annual tax returns.
  • PAYE: If the company has employees, it will need to register for PAYE and deduct income tax and National Insurance contributions from their wages.
  • VAT: Depending on the company's turnover, it may need to register for and charge Value Added Tax (VAT).

Ensuring you comply with all the relevant tax requirements is crucial for the smooth running of your limited company. :

How long does it take to set up a limited company?

Setting up a limited company in the UK can be done relatively quickly, often in a matter of days if using an online company formation service. Here's a breakdown of the typical timeline:

  1. Company registration: The company registration process with Companies House typically takes 8-10 working days. This involves submitting the necessary forms and documents to officially incorporate the new limited company.
  2. Online formations: Many company formation providers offer online services that can have your limited company set up in as little as 3-4 working days. These services handle the entire registration process on your behalf.
  3. Expedited services: For an additional fee, some providers can expedite the company registration process and have it completed in as little as 24 hours. This is ideal for those who need to get their limited company up and running as soon as possible.
  4. Ongoing compliance: After the initial registration, there are ongoing administrative tasks like filing annual accounts and tax returns. While these have their deadlines, the core setup of the limited company can be done very quickly in the UK.

Overall, the speed of setting up a limited company largely depends on whether you handle the registration yourself or use a formation service. But in most cases, you can expect to have your new limited company established within 1-2 weeks, or even as little as 1 business day if using an expedited service.

Costs involved in setting up a limited company

When setting up a limited company in the UK, there are a few key costs to be aware of. The most significant upfront cost is the £12 registration fee charged by Companies House to officially incorporate your new business.

Beyond the basic registration, you may choose to utilise additional services that come with associated fees. For example, many entrepreneurs opt to use a registered office address service, which provides an official company address for a small annual charge, typically around £50-£100.

Once your limited company is established, there are ongoing costs to consider as well. You'll need to file annual accounts and tax returns, which can be done yourself or with the help of an accountant. Accountant fees can range from a few hundred pounds for basic services up to £1,000 or more for more comprehensive support.

Additionally, if your company is required to be VAT registered, there are administrative costs involved in managing VAT payments and filings. The overall costs for setting up and running a limited company will depend on the specific needs and complexity of your business.

While these upfront and ongoing expenses may seem daunting, the benefits of operating as a limited company often outweigh the costs, providing liability protection, tax advantages, and increased credibility for your enterprise.

If you're setting up a limited company in the UK for your business, you may want to consider using a company formation service provider. These services can simplify the process and ensure everything is done correctly from the start.

We can guide you through the steps of setting up your limited company, including choosing the right company structure, registering with Companies House, and handling the necessary paperwork. We at dns accountants also provide ongoing support with accounting, tax planning, and other financial services to help your business thrive.

Using a company formation service from dns accountants can save you time, reduce the risk of errors, and give you peace of mind that your limited company is set up properly and compliant with all relevant laws and regulations. dns accountants are your trusted partner for company formation in the UK. Contact us today at 033 0088 3616 , email contact@dnsaccountants.co.uk, or book a free consultation for expert assistance tailored to your needs.

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About the author

Sumit Agarwal
Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants