How do I set up a Limited Company?

Setting up a limited company is a common choice for businesses of all types and sizes. The benefits of running your business as a LTD company often outweigh the negatives with tax efficiency and a company having a separate legal entity status topping the list of advantages.

Companies House is the name of the government department that registers and administers company records and they call the process of setting up a limited company “incorporation”.

We’ve listed below the main steps you need to take to incorporate your business as a limited company.

What type of Company should I Incorporate?

There are different kinds of limited company with most businesses choosing a private limited company (LTD) and some a public limited company (PLC).

Private limited company by shares:

A private limited company by shares is usually the choice of sole traders and smaller businesses with a low £1 minimum entry point needed as share capital.

You can appoint as many directors and shareholders as you wish with one being the minimum for both.

For individuals it is standard practice to set up a limited company with only you as the only shareholder and director.

Shareholders need to invest at least £1 into the company which gives responsibility for the portion of their shareholding and gives them a legal entitlement to part of the companies trading profits.

It is not possible to offer shares to the public in a private limited company unlike a public limited company.

Public limited company:

A public limited company needs a minimum share capital of £50,000 to start and requires at least two directors, two shareholders and a company secretary. In most cases the company will also need to be audited.

One of the main benefits of a public limited company is the option to offer shares to the public which can raise capital for the company.

Anyone that buys the companies shares becomes a shareholder in the company and can usually sell the shares at anytime.

Limited liability partnership:

A limited liability partnership (LLP) is comparable to a private limited company in many ways with the main difference being that shareholders are replaced by partners.

Each partner is legally responsible for an equal part of the company and not just their shareholding like a private limited company.

Private limited company by guarantee:

A private limited company by guarantee (LBG) is typically ran as a non profit or charity. Unlike other limited companies there are no shareholders with guarantors in place who are responsible for the company and it’s debts.

Private unlimited company

A private unlimited company has shareholders called members who are all equally responsible for all of the companies liabilities and debts.

Unlike other limited companies a private unlimited company does not have to submit financial statements or an annual return.

What is your Limited Company name?

Making sure your limited company name is available before you send in your incorporation application is recommended.

Companies house has particular criteria that your name needs to fit to be permissible.

The strict rules mean that some words are not allowable for example words that cause offence or are inappropriate.

You can use the company name availability checker provided by companies house for free to make sure the company name you’d like isn’t already being used or includes a restricted word.

Decide who will be a Director of your Company

A director has the responsibility for ensuring that the limited company is managed legally and fulfils responsibilities like filing accounts and paying corporation tax.

The decision of who will be a director of your limited company is important and you need to choose at least one.

There is no upper limit to how many directors your company can have and you can add them in and remove them in the future.

If you are the only director of your company there isn’t much thought needed however if you are appointing more than one director you should talk through the effects with your accountant before incorporation.

Decide who will be a Company Shareholder

A limited company (by shares) has to have at least one shareholder and they don’t need to be a director in the company.

Shareholders in a limited company have to invest a minimum of £1 or any other amount to receive in return the right to a portion of the companies trading profits.

There is no upper limit to the number of shareholders you can have or the number of shares each shareholder has.

A shareholder usually has the right to vote on company decisions at a shareholders meeting with one vote typically equaling one share.

If one shareholder has more than 25% this gives them the status of being a person of significant control (PSC).

What do Companies House need to Incorporate my business?

To incorporate a limited company companies house gives you the option to submit your application online or by post.

If you choose to incorporate your company by paper you should complete form IN01 which you can download and print from .GOV.

Most limited companies are incorporated online with the following information being needed in addition to the above:

• 3 pieces of personal information about each company shareholder or guarantor. This can include your national insurance number, passport number or town of birth.
• The address of your limited company.
• Select the correct SIC code to confirm what type of industry your business is working in. SIC stands for standard industrial classification and companies house provides you with the available options as part of your incorporation application.

You can choose up to four SIC codes depending on the nature of your business and the relevant industry.

The cost of incorporation of a limited company online is £12 which is payable by debit or credit card and £40 payable by cheque for a postal IN01.

Formation of a limited company application tips

Like all applications it is sometimes easy to get details wrong which in this case can mean your registration is rejected by companies house.

We have listed below some tips which can help you avoid a rejection:

• Make sure that all full names are provided without the use of initials.
• Check your nationality is spelled correctly and an ethnicity is not used instead of a nationality.
• Confirm that the shareholders (known as subscribers on your application) names are spelled correctly and that the company is not subscribing to itself.
• Ensure the correct memorandum of association is with your IN01 incorporation form and the memorandum includes a printed name, signature and date.
• Use exactly same company name throughout your application and any supporting documentation.
• Filing your limited company incorporation online provides inbuilt validation which reduces the chances of making errors that could lead to a rejection.

What happens after I have submitted my incorporation application?

Companies house can complete a correct online application in an average of one day with a turnaround of about 8-10 days for postal registrations.

You will receive a certificate of incorporation from companies house which confirms that your company legally exists and includes the company formation date and limited company number.