How to set up a private limited company

In this article, we set out the most important steps and considerations for setting up a private limited company. HMRC sets out guidelines under eight headings:

• Check if setting up a limited company is right for you

• Choose a name

• Choose directors and a company secretary

• Decide who the shareholders or guarantors are

• Identify people with significant control (PSC) over your company

• Prepare documents agreeing how to run your company

• Check what records you'll need to keep

• Register your company

Decide the right structure for your business

If you are planning to set up a private limited company, you may already be in business as a sole trader, or you may be setting up a new business following full-time employment. Either way, it’s important to understand the advantages and disadvantages of a private limited company compared with operating as a sole trader.

You’ll find a full discussion in the article ‘Sole trader or limited company: Which is best for you?’.

The most important differences are that you reduce the risk of personal liability, save on your tax bill and have more flexibility in the way you pay yourself if you set up a limited company. On the downside, you will have greater reporting responsibilities, as well as more administration to deal with when you set up a limited company.

Choose a name for the business

Your company name is one of your most important assets. It identifies your business and provides the basis for future branding campaigns, so choose it carefully. You might choose a name that signifies the type of products or services you offer, or a name includes your own name if you have a strong reputation in your market.

First check that the name you check is available. It must not be in use or similar to a name used by another company. A name checker is available on the government website. If you mistakenly choose a name that is similar, Companies House will alert you when you register your business.

There are other restrictions on name choice. For example, your name must not suggest that your company is endorsed by a public body, unless you have permission, and you must not use a name that is offensive. You can find trademark and registration advice here.

When you set up a limited company, your business name will end in ‘limited’ or ‘ltd’ when it is used in official documents. However, you can also choose another name and use it as a ‘trading name’, for example, COMPANY NAME Ltd, trading as ANOTHER NAME.

Provide a Registered Address

A ‘Registered Address’ is an address where other businesses, government departments or public bodies can send official communications by post or by hand. You can use the address of your business premises, your residential address if you work from home, or the address of an accountant or solicitor.

Related: Running a business from a rented property

Appoint Directors

A private limited company must have at least one Director. You can be a Director yourself or appoint an independent Director. The person appointed is responsible for making decisions that are in the best interest of the business, ensuring that the business complies with any relevant laws, rules or regulations, maintaining accurate business records, filing accounts and paying Corporation Tax.

You can appoint more than one Director as well as a Company Secretary, although it is not mandatory. A Company Secretary takes responsibility for handling administrative tasks and ensuring regulatory compliance.

When you register your business, you must provide the names, addresses, dates of birth and nationalities of all company officials.

Nominate shareholders

Your business must have at least one shareholder. You can hold shares yourself, give them to Directors or offer shares to other people. Each shareholder can receive dividends from annual profits and has proportionate voting rights when important decisions are taken at board meetings or shareholder events, such as an Annual General Meeting.

When you register your business, you must provide details of each shareholder, including name, address, and number of shares held, as well as three items of personal information.

You do not have to issue shares evenly, but you must be aware of the rule of ‘persons of significant control’, also known as PSCs. This refers to anyone who holds more than 25 percent of the shares in the business and has a greater influence on decision-making. You must keep a record of PSCs and inform and update Companies House if shareholding changes.

Related: Calculating tax on dividends: A guide & example

Prepare official company documents

You must prepare two types of legally-binding documents that set out how you will run your limited company:

• Memorandum of Association

• Articles of Association

The Memorandum of Association is a document that states that the shareholder or shareholders agree to form a private limited company. The document includes the following wording and must be signed by all shareholders, also known as ‘subscribers’ - Each subscriber to this Memorandum of Association wishes to form a company under the Companies Act 2006 and agrees to become a member of the company and to take at least one share.

The Articles of Association set out rules, known as ‘governance’ that determine how the Directors will run the company. For example, the document sets out Directors’ responsibilities, shareholders’ voting rights and procedures for distribution of dividends.

Confirm the official records to keep

There are three types of official records you must prepare and retain for a minimum of six years:

• Records of company activities, such as lists of Directors and voting decisions.

• Financial records of all transactions.

• Records of persons of significant control.

The government website sets out more details of the records you must keep.

Related: How To Read A Company Balance Sheet

Related: Profit And Loss Forecast Template & Guide

Register your business

When you are satisfied that you have completed all the tasks outlined above, you must register your business and company name with Companies House. There are two ways to register:

• Set up a company online. Using this service will also register your business for Corporation Tax.

• Register by post. You must use this postal service if you do not want to include ‘limited’ in your company name. To register by post, complete and submit form IN01.

When you register, you must choose the SIC (Standard Industrial Classification) code that applies to your business and provide three pieces of personal information which will be used to verify your identity.

Registration is completed quickly - usually within 24 hours if you register online or within 10 days if you register by post.

The cost of registration is £12 for online applications, £40 for postal applications or £100 for a same-day postal registration.

Take professional advice

There are clear potential benefits in setting up a private limited company when you are planning for growth, but there are also disadvantages. Making a decision about the right structure for your business can be complex and must be based on sound business and financial principles.

If you would like advice on the most suitable structure for your business, our team of experienced small business advisers and accountants will be glad to help. We can provide expert advice, a range of tax services and guidance to help you make your decision. If you decide to go ahead and set up a PLC, we can help you through the process. To find out more, please contact us at info@accountsandlegal.co.uk.