What do I need to do when setting up a new company? Should I set up as a Limited Company?
When you start your own business, there are many things to consider. One of which is whether you should be a sole trader or trade as a Limited company (there are other options available too).
There are many reasons for and against, but it can hugely depend on the type of business you are running, and how you will be running it.
So today, let's talk about the different aspects of becoming a Limited Company, giving you the information to decide what is the best way forward for you.
There are many reasons for and against, but it can hugely depend on the type of business you are running, and how you will be running it.
So today, let's talk about the different aspects of becoming a Limited Company, giving you the information to decide what is the best way forward for you.
There are 3 ways to set up a Limited Company:
When setting up a new company there are a number of points to consider:
- Register it yourself with Companies House online.
- Pay a company formation agent to do it on your behalf - an independent, professional firm specialising in the registration of companies at Companies House, providing you with advice and support throughout the application process and into the future.
- Buy an ‘off the shelf’ ready-made company and then change the name, directors etc.
When setting up a new company there are a number of points to consider:
- What will be the company name and registered address?
- Who will be the shareholders and directors?
- How many shares the company will have, and what rights will attach to them?
Company Name
When setting up a new company, you will need a Company name.
When setting up a new company it’s important to think about the name you are going to give it. Once you have come up with a name you like, as a first step you should check that you can use your proposed company name.
· No two companies can have the same or similar names: check the Companies House register to ensure the name is not already taken.
· You should also check on the trademark register held by the Intellectual Property Office to ensure you are not infringing an existing trademark.
· It is also sensible to check that a website Uniform Resource Locator (URL) of the same name or your proposed trading name is available and is registered online.
Make sure your company name is unique to you.
A name cannot be the ‘same as’ or ‘too like’ an existing name. These will be where the only difference to an existing name is in:
For example:
You can only register a name which is the ‘same as’ another name if it is part of the same group or you get permission from the other company. You can be asked to change your name if someone else complains.
When setting up a new company, you will need a Company name.
When setting up a new company it’s important to think about the name you are going to give it. Once you have come up with a name you like, as a first step you should check that you can use your proposed company name.
· No two companies can have the same or similar names: check the Companies House register to ensure the name is not already taken.
· You should also check on the trademark register held by the Intellectual Property Office to ensure you are not infringing an existing trademark.
· It is also sensible to check that a website Uniform Resource Locator (URL) of the same name or your proposed trading name is available and is registered online.
Make sure your company name is unique to you.
A name cannot be the ‘same as’ or ‘too like’ an existing name. These will be where the only difference to an existing name is in:
- Punctuation.
- A special character (e.g. &, +),
- One or more other words listed in Companies House guidance.
For example:
- ‘Hands UK Ltd’ and ‘Hand’s Ltd’ are the same as ‘Hands Ltd’
- ‘Box.com Ltd’ is too similar to ‘Box Ltd’.
You can only register a name which is the ‘same as’ another name if it is part of the same group or you get permission from the other company. You can be asked to change your name if someone else complains.
Are there any other things I need to consider about my company name when setting up a new company?
There are further rules when choosing a name:
What’s classed as ‘sensitive’ words?
‘Sensitive’ words and expressions include:
There are further rules when choosing a name:
- It must end in Limited / Ltd or the Welsh equivalent, except for certain charities, sports clubs etc.
- It cannot be offensive.
- It cannot suggest a connection with the government, a devolved administration, local or public authority.
- It cannot use certain characters, signs, symbols and punctuation
- It cannot contain ‘sensitive’ words or expressions without approval.
What’s classed as ‘sensitive’ words?
‘Sensitive’ words and expressions include:
- Anything suggesting pre-eminence or a particular status or function, e.g. British, Institute or Tribunal.
- Words that represent a regulated activity such as ‘chartered accountant’ or ‘dentist’. To use these you have to get approval from the relevant professional body.
Registered Address
When setting up a new company you must have a registered address.
The company’s registered address is important as this will be where all official Companies House and HMRC correspondence is sent.
The chosen address must be:
Can I use my home address?
You can use your home address but be aware that this will be publicly available on the Companies House register. If the company does not have any other physical premises you may use that of an accountant or adviser (provided they are willing of course).
Shareholders
Who can I choose as shareholders when setting up a new company?
Shareholders (also referred to as 'subscribers') own the company and, depending on the rights attaching to their shares (see below), are entitled to dividends and can vote on issues affecting the company.
When setting up a new company you must have a registered address.
The company’s registered address is important as this will be where all official Companies House and HMRC correspondence is sent.
The chosen address must be:
- A physical address. (A Post Office (PO) box can be used but must be followed by a physical address and postcode.)
- In the same country as the country it’s registered in i.e. a company registered in Wales has to have a registered address in Wales.
Can I use my home address?
You can use your home address but be aware that this will be publicly available on the Companies House register. If the company does not have any other physical premises you may use that of an accountant or adviser (provided they are willing of course).
Shareholders
Who can I choose as shareholders when setting up a new company?
Shareholders (also referred to as 'subscribers') own the company and, depending on the rights attaching to their shares (see below), are entitled to dividends and can vote on issues affecting the company.
- The company must have at least one shareholder on incorporation.
- Shareholders can also be directors.
- There is no maximum level of shareholders.
Can my shareholders be family members?
If you wish to include family members as shareholders (for example to use up their dividend allowance or unused personal allowance) then you can do this at incorporation.
If you do not include other shareholders at incorporation you can always issue new shares to them at a later date.
Directors
Does my new company need directors, and if so how many?
Directors are legally responsible for running the company and filing all necessary accounts and returns. Financial penalties can apply where directors do not carry out their duties properly, so be careful when choosing who to appoint.
The company must have at least one director. There is no upper limit on the number it can have.
Any director must:
If you wish to include family members as shareholders (for example to use up their dividend allowance or unused personal allowance) then you can do this at incorporation.
- This may be preferable to waiting until the business is running and then transferring existing shares to them, as this will incur stamp duty.
- You should always consider whether the Settlement anti-avoidance rules apply to any subscription or transfer to a spouse or minor child.
If you do not include other shareholders at incorporation you can always issue new shares to them at a later date.
Directors
Does my new company need directors, and if so how many?
Directors are legally responsible for running the company and filing all necessary accounts and returns. Financial penalties can apply where directors do not carry out their duties properly, so be careful when choosing who to appoint.
The company must have at least one director. There is no upper limit on the number it can have.
Any director must:
- Be 16 or over.
- Not be disqualified from being a director.
- Not be an undischarged bankrupt (unless given court permission).
Does a director have to be a person, or can a company act as a director?
Another company can act as a director, but you must have at least one real person as a director. You should note that following the registration, directors’ names and home addresses will be publicly available on Companies House. This can be avoided through using a service address, for example, if you think there is a risk of the director (or their family) being at risk of abuse or harm because of the company’s activities.
A private limited company doesn’t need a company secretary. If you do choose to have one they can also be a director, but can’t be:
Shares
What are shares and why do I need them when setting up a new company?
The company must have at least one share in issue when registered. You should consider:
Private companies are generally formed with just one class of ordinary share for the sake of simplicity.
Different classes of shares may be of interest though if you want different shares to have different rights (for example to limit voting rights of younger family members). When varying rights you should always be careful that this will not result in the Settlement rules applying.
New classes of share can easily be created during or after incorporation, subject to the provisions of the company's Articles under the direction of the board of directors with shareholder consent.
Another company can act as a director, but you must have at least one real person as a director. You should note that following the registration, directors’ names and home addresses will be publicly available on Companies House. This can be avoided through using a service address, for example, if you think there is a risk of the director (or their family) being at risk of abuse or harm because of the company’s activities.
A private limited company doesn’t need a company secretary. If you do choose to have one they can also be a director, but can’t be:
- The company’s auditor.
- An ‘undischarged bankrupt’ (unless they have court permission).
Shares
What are shares and why do I need them when setting up a new company?
The company must have at least one share in issue when registered. You should consider:
- How many shares do you want to issue and with what nominal value? Most companies use a nominal value of £1 for ease of calculation.
- In what proportion do you want to issue these to your selected shareholders? Be aware that a holding of over 50% will give control to a shareholder, but you will need 75% to pass a special resolution.
- What rights to dividends, votes etc. do you want to attach to the shares? Be careful with special rights as these can result in a range of tax reliefs not being available.
- Do you want to issue more than one class of share?
Private companies are generally formed with just one class of ordinary share for the sake of simplicity.
Different classes of shares may be of interest though if you want different shares to have different rights (for example to limit voting rights of younger family members). When varying rights you should always be careful that this will not result in the Settlement rules applying.
New classes of share can easily be created during or after incorporation, subject to the provisions of the company's Articles under the direction of the board of directors with shareholder consent.
Anything else?
Is there anything else I need to do as part of the registration process when setting up a new company?
Is there anything I will need to prepare ro register my new company with Companies House?
The answer is yes. You will need:
What is a Memorandum of association?
The memorandum of association is an agreement of all initial shareholders to create the company which:
What are Articles of association?
The articles of association set down the rules agreed by the director and shareholder as to how the company will be run. There is more flexibility than with the memorandum of association:
A note of caution if you use bespoke articles:
Is there anything else I need to do as part of the registration process when setting up a new company?
- Decide whether to adopt model articles of association - The Model articles of association is a legal document containing the standard default provisions that regulate how a company is run. As part of a limited company's constitution, articles specify the internal rules and regulations that must be followed by a company's members and directors.
- Make a statement of initial capital - The statement of capital and initial shareholdings is essentially a “snapshot” of a company's share capital at the point of registration.
- Confirming the persons of significant control - A Person of Significant Control (PSC) is anyone that exerts a significant influence or control over a company. They are identified as a PSC if they hold more than 25% of a share in a company, or if they have the right to participate in more than 25% of the surplus assets of an LLP.
- Register the company with Companies House. (See bottom of post for link.)
Is there anything I will need to prepare ro register my new company with Companies House?
The answer is yes. You will need:
- A ‘memorandum of association’.
- ‘Articles of association’.
- A ‘statement of capital’ setting out details of the share capital and shareholders.
What is a Memorandum of association?
The memorandum of association is an agreement of all initial shareholders to create the company which:
- Has to be signed by all shareholders.
- Has to follow a strict legal layout from which there should be no variation or deviation. Use the Companies House template to make sure yours is valid.
What are Articles of association?
The articles of association set down the rules agreed by the director and shareholder as to how the company will be run. There is more flexibility than with the memorandum of association:
- Most companies use standard or ‘model’ articles which can be downloaded from Companies House
- You can write your own bespoke articles if you want to depart from the model articles.
A note of caution if you use bespoke articles:
- You can’t register the company online so you will have to use the slower, more expensive postal route.
- If you wish to depart dramatically from the model articles it is sensible to get professional advice to ensure they still comply with the Companies Act requirements.
Tax
How will I pay tax when setting up a new company? Will it automatically happen when I register with Companies House?
The answer to this is no. You MUST register with HMRC. You will need to register for Corporation Tax within three months of 'starting to do business'. This can include:
How do I register with the HMRC?
When setting up a new business, registration with the HMRC can be done online.
To register you will need your Unique Taxpayer Reference (UTR). This should be sent automatically to the company’s registered address within a few days of registration. If you don't receive a UTR you have to call HMRC and ask them to send out another (they won’t give it out over the phone).
You should also register for VAT and employment taxes as needed.
Once registered, the company will also have ongoing annual requirements to file year end accounts, a confirmation statement and once you start trading submit company tax returns to HMRC.
How will I pay tax when setting up a new company? Will it automatically happen when I register with Companies House?
The answer to this is no. You MUST register with HMRC. You will need to register for Corporation Tax within three months of 'starting to do business'. This can include:
- Buying and selling.
- Providing services.
- Earning interest.
- Employing someone.
- Advertising.
- Renting a property.
- Receiving any other income.
How do I register with the HMRC?
When setting up a new business, registration with the HMRC can be done online.
To register you will need your Unique Taxpayer Reference (UTR). This should be sent automatically to the company’s registered address within a few days of registration. If you don't receive a UTR you have to call HMRC and ask them to send out another (they won’t give it out over the phone).
You should also register for VAT and employment taxes as needed.
Once registered, the company will also have ongoing annual requirements to file year end accounts, a confirmation statement and once you start trading submit company tax returns to HMRC.
Do I need an accountant?
Are there any other ongoing requirements I will need to remember once I’ve finished setting up a new company?
Once the company has been registered it will have a number of ongoing administrative obligations, including:
This is why many businesses, especially Limited Companies, will hire an accountant. It’s not worth making mistakes and threatening a business you have worked so hard to build, just because you were too busy to keep on top of the accounting, or you weren't sure what to do.
To register with companies house go to:
https://www.gov.uk/topic/company-registration-filing/starting-company
To get help with setting up and your accounting needs, I'd love to help.
Are there any other ongoing requirements I will need to remember once I’ve finished setting up a new company?
Once the company has been registered it will have a number of ongoing administrative obligations, including:
- Filing annual accounts with Companies House.
- Filing an annual Confirmation Statement with Companies House to ensure their records are up to date.
- Notifying Companies House of changes to the company e.g. its name, registered office, directors, shareholders, mortgages or articles.
- Filing annual Corporation Tax returns, as well as all other tax returns (e.g. VAT, PAYE) as required.
This is why many businesses, especially Limited Companies, will hire an accountant. It’s not worth making mistakes and threatening a business you have worked so hard to build, just because you were too busy to keep on top of the accounting, or you weren't sure what to do.
To register with companies house go to:
https://www.gov.uk/topic/company-registration-filing/starting-company
To get help with setting up and your accounting needs, I'd love to help.
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