Setting up as a limited company is more complex than setting up as a sole trader. There’s more to do and it takes a bit longer.
However, setting up as a limited company can benefit you in many ways, especially if you want to grow and expand your business.
Here we’ll go through what you need to know before setting one up.
Choose Your Business Name
One of the most important steps when starting a business is choosing a name. Your business name might not seem like a big deal but it can determine the brands direction in the future.
Your registered name must include ‘limited’ or ‘ltd’ (unless you register as a charity or are limited by guarantee). Think carefully about which prefix you prefer because you must not use them interchangeably once your company is incorporated (e.g. if you choose ‘company limited’ but try and file something under the name ‘company ltd’ that filing will be rejected).
Your name cannot be the same as another registered company’s name. If your name is too similar to another company name or trademark then you may have to change it if someone makes a complaint and that can prove costly, particularly if you have to restart your branding again.
Make a note of a few ideas you have and then check whether any of your proposed names are eligible using the Companies House search tool.
Your proposed name cannot be offensive. Neither can it contain a ‘sensitive’ word or expression, or suggest a connection with the government unless you get permission.
Once you have chosen a company name you are entitled to trade using a different name to your registered name. This is known as a ‘business name’ and will appear at Companies House following ’t/a’ which stands for ‘trading as’. Your trading name must follow the same rules as your company name. Your trading name cannot include the words ‘ltd’ or ‘limited’.
We also recommend checking if your proposed business name is available across social media platforms. Although not a deal-breaker, it’s nice to know the usernames will be available to you.
You can use the following username availability tool.
Finally, it’s very likely you will need a business website (don’t think you do? Read our blog to find out why you need a website for your business). So it’s a good idea to check the availability of any domain name that you might want. Start by searching for your business or trading name. Your domain name should be short and memorable. Use this tool to search domain names: instantdomainsearch.com.
Choose Your Directors
You must appoint at least one person as a director of your company. Most people are eligible to become a director. All you need to be is older than 16 and not previously disqualified from being a director.
Directors don’t have to live in the UK but must have a UK registered office address. If you are becoming a director, your name and service address will appear on the Companies House public register so bear that in mind.
If you object to having your home address on a public register, you can apply to Companies House to have it removed.
Becoming a director is a big commitment. Once appointed, a director becomes subject to directors’ duties enshrined in the Companies Act which if breached can lead to personal legal liability.
You don’t need more than one director if you adopt the model articles of association (which 99% of companies do when they incorporate). Neither do you have to appoint a company secretary.
However, if you’re starting a business with a team, it would be advisable to appoint two directors to improve company decision making.
You’re required to keep a register of all directors at your registered office address. That register must contain the director’s full name, any former names, a service address, date of birth, country they are usually resident, their nationality, business occupation (which can be ‘none’), and the date they became a director.
Shareholder(s) and Structure
You also need at least one shareholder. If your business involves only yourself, you can appoint yourself as the director and be the sole shareholder in your company.
You want to set your company up so that it is ‘limited by shares’ as opposed to ‘limited by guarantee’ as being limited by shares means the company is owned by the shareholders, who are given voting rights which attach to the shares they own and means that the personal liability of the shareholders will only equal the value of the shares they own (e.g. almost no liability).
You should create ‘ordinary’ shares which give each shareholder one vote per share, and a right to receive dividend payments in the future.
We recommend incorporating with 1000 ordinary shares each with a nominal value of £0.01, so that your entire share capital equals £10. This will give you enough wriggle room if you decide to transfer some shares to other individuals or wish to issue more shares to investors.
When you incorporate your company you need to provide a ‘statement of capital’ which explains the number of shares the company has and their total value, as well as the names and addresses of all shareholders. You’ll also need to describe what rights each type of share (share classes) gives the shareholder. You can use the following wording to describe the ordinary shares you’re creating as follows:
‘The Ordinary Shares have attached to them full voting rights and full dividend rights. They do not confer any rights of redemption. They have capital distribution rights limited to pro rata rights in proportion to the total number of ordinary shares (on an as converted basis for preference shares).’
You’re required to keep a register of all of your shareholders at your company’s registered office. This register must contain each shareholder’s full name, contact address, number and class of share, the amount paid on each share, and the date they became a shareholder.
Persons of Significant Control
You’re required by law to keep a register of anyone who is considered to be a ‘person of significant control’ at your registered office, and file that PSC information at Companies House. This register must be available for inspection. Failure to provide it results in a criminal offence.
For the purposes of incorporation, a person of significant control is someone who holds more than 25% of the shares in your company.
You also need to register anyone who holds more than 25% of the voting rights in your company. However, given you’ll be incorporating with ordinary shares, the voting and ownership percentage will remain equal as and until you decide to issue ‘non-voting’ shares.
For each person of significant control, you’ll need their name, date of birth, nationality, country where they usually live in, service address, and the date they became a person of significant control. If you use the government portal, the application process will complete this step for you but do not forget to keep an additional register of these individuals at your registered office.
Articles of Association
If you register your company online using the Companies House portal, you’ll be provided with a ‘memorandum of association’, which is a legally required document showing that the initial shareholders of the company agreed to form the company.
You’ll also be provided with what are called the ‘model articles of association’. These are the constitutional rules of your company which set out how decisions are made in your company. The model articles will be sufficient until you have spent some time growing your business.
You can also elect to adopt your own custom articles if you have them already prepared. Unless they have been prepared professionally, you should adopt the model articles of association.
Registered Address and Sic Code
You must provide a registered office address. This is where official communication will be sent such as letters from Companies House, and where people can expect to find your statutory registers.
The address must be a physical address in the UK (and must be in the country your company is registered e.g. English address for an English company). You can’t remove this address from Companies House, so if you don’t wish to use your residential address, you should consider finding a suitable alternative address before incorporation.
A Standard Industrial Classification (‘SIC’) code is used to identify what kind of economic activity your new company is going to undertake.
The Office of National Statistics uses these codes to collate data about the types of business taking place in the UK. SIC codes are not the easiest as more often than not, your business won’t fit neatly into just one category. Try and match with the nearest.
You can search for the most appropriate SIC code for your new business here: resources.companieshouse.gov.uk/sic/.
Now It’s Time to Register Your Business
Now that you have all the necessary information, it’s time to register your business.
There are two options for you to choose from. You can either register your business yourself or you can use a third-party to do it for you.
To register yourself, you can use the gov.uk portal. You’ll be able to register for corporation tax at the same time, which is something you must do within three months if you use a third-party.
We highly recommend using a third-party because it gives you the extra peace of mind that your company will be registered correctly. Third-party companies also offer a bunch of extras, which may be beneficial to you.
Spend some time researching different companies and pick the one that best fits what you need. The two we recommend are Tide or YourCompanyFormations. One of the benefits of using Tide is that you’ll get a business bank account straight away.
What’s Next?
Once you have your business set-up, you’ll want to start creating an online presence so you can build up a customer base.
That’s where we can help.
We partner with new businesses to give them the best possible start. You can find out everything you need to know on our pay monthly website page.
When you’re ready to get started give us a call on 0333 014 4472 or email us at newbusiness@hellooodesign.com so we can discuss your business further.
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