Setting up a limited company - the 3 steps and what you need to know

Introduction

Setting up a limited company is something more than half a million UK business owners do each year. Despite that large number, if you've never been through the process of setting up a company it can seem like a complicated and confusing task.

This guide aims to explain the three steps required to register your very own limited company, as well as give you a brief introduction on why you may want to set up a company in the first place.

Why set up a limited company?

A limited company is seen as a different legal “person” to you as the business owner. Setting up a limited company creates a line between the owners of a business and the business itself. Creating this separation brings some great benefits that are not possible when trading as a sole trader.

Your personal belongings, such as your house or car, are protected from any nasty business debts. Tax on limited company profits can be much lower than tax on the profits of a sole trader. Business funding is easier to obtain. Selling a business is more straightforward. Your brand will appear to be more professional. The list goes on and on.

Step one: choose your name

Choosing your new company’s name is the first step to setting up your limited company. This can be an exciting part of setting up your business, however there are rules for what you can and can’t use as a company name.

Every company name must be unique. That is, your name must not be used by another limited company. Unfortunately if the name you want is taken you may have to choose another.

Sometimes you can make a little change to your chosen name to try to get around this rule. If you choose to do this your company name may be determined to be either the “same as” or “too like” the name already taken. Find out more about when your name may be classed as the “same as” or “too like” another name.

Your name cannot be offensive in any way. Your name must also not contain protected words without permission. Protected words are words or phrases that suggest you are either connected to a government department or have a qualification. The word “solicitor” is protected for example. Find out more about protected words.

Once you have chosen your company name you can check to see if it’s available by using the online company name availability checker.

Step two: register your company

After choosing your company name the next step is to register your limited company with Companies House. Companies House charge £12 to register a company and will usually have the company registered within 24 hours.

You can choose to do this yourself or ask an agent such as your accountant to register it for you. At TaxBoxx, we'll register a limited company for you completely free of charge as part of our Start-up Support Program.

If you choose to do this yourself you will need to provide the following information to Companies House:

Registered office address

This is where official letters will be sent to you by organisations such as HMRC and Companies House. This must be a physical address in the UK. It must also be in the same country that your company will be registered in. For example, if you choose to register your company in Scotland, your registered office address must also be in Scotland.

One important point is that your registered office address will be publicly available for anyone to see on the Companies House website.

If you are planning on using your home address as your registered office and prefer not to have this address publicly available, you can use your accountant’s office as your registered office address.

Directors

Directors are the people that will control your company. For small businesses the directors are usually the business owners, although this isn’t always the case. Directors are typically the people that make day-to-day decisions about the running of the business and will have access to the business bank accounts.

Your company’s directors will have certain responsibilities, such as filing accounts and submitting tax returns on behalf of the business. There can be significant consequences for a director if these legal duties are not met.

Shares and shareholders

Shares can be the most difficult part of the registration process to understand. Put simply, shares are the way you describe how ownership of your company can be divided.

For example, you may decide to have your company divided by 100 shares. If you had a 50/50 business partner, you would simply have 50 shares each. Or let’s say you should own 75% of the company and your business partner should own 25%. Instead of having 50 shares each, you would have 75 and your partner would have 25. It’s that simple.

You don’t have to divide your company into 100 shares either. If you should own 100% of the company, you could just divide your company into 1 share. The result is the same as if you divided the company into 100 shares.

When you divide you company into shares, it’s called a “share issue”. You are “issuing” the shares to people. The people that have the shares issued to them are called shareholders.

More complicated shares structures can be created to achieve tax advantages or other benefits, however we would always recommend you discuss this with an accountant.

PSC register

PSC stands for “people with significant control”. A PSC is usually someone that owns 25% of the total shares in your company or more. For most small businesses the PSC register is quite straightforward, however there can be times where this is not the case. More complicated cases include when your company’s shares are owned by another company, and when a shareholder is controlled by another person.

Documents you will need

When you register your company you will need to provide documents such as your Articles of Association and Memorandum of Association. Most accountants will have templates to make this process painless, and Companies House have basic model documents you can adopt.

Step three: set up your bank account

If you’ve managed to register your limited company with Companies House, congratulations! The next step is to set up a limited company bank account. There are many different business bank accounts out there.

We strongly recommend signing up to online banking when setting up your bank account. Online banking allows you to download copies of your bank statements and make online payments to your suppliers, resulting in lower bank fees.