It is relatively easy to set up a new limited company and many formation agents will charge less than £50 to do it.
So there is little point wasting your valuable time on trying to find out how to do this yourself. This time could be better spent on the other things you need to do to get your business of the ground!
Before you contact the formation agent to get the business started you will need a few things sorted out …
Every company needs:
- at least one director (private companies no longer need a Company Secretary)
- a Registered Office address where formal documents will be sent
- a name for your business that has not already been registered at Companies House
The company must have share capital.
This is an area that many get wrong with new companies set up with 1,000 shares of £1 each. Many do not realise that whatever share capital is issued needs to be paid for – so £1,000 would need to be paid to the company for the 1,000 shares.
It is rarely necessary to have lots of shares or a high value share capital.
If you are the only shareholder then one share of £1 is perfectly satisfactory or even 10 shares of £1 – then only a very small amount needs to be paid to the company for the shares.
The shareholders’ liability is limited to their investment in the company i.e. how much they agreed to pay for the shares (unless of course they give personal guarantees on the debts).
Hence the term limited liability.
On formation of the company several documents have to be filed. The formation house will take care of these but it is worthwhile being familiar with the terms:
Memorandum of Association
- the company name
- the location of the registered office
- what the company will do
- that the liability of its members is limited and details of the share capital
Articles of Association
This sets out the rules for the running of the company’s affairs.
This gives details of the first director(s), secretary and the registered office address. Every company must have at least one director. It is no longer necessary for a private company to have a secretary. It includes a statutory declaration that all the legal requirements relating to the formation of the company have been meet.
A limited company can be set up in less than 24 hours but ….
Business Bank Account
A limited company must have its own business bank account.
This is because the company is classes as a separate legal entity. You cannot use your own personal bank account and, in fact, doing so can lead to tax issues so it is best avoided.
The issue is that the business bank account can take anything from days to several weeks to set up depending on the bank and your history.
You will be required to give the bank proof of your identification. A poor credit history in your personal financial affairs can impact on the willingness of the bank to open a bank account for the company.
And finally …
Things that a formation house will not necessarily do for you are the tax forms!
A limited company may need a payroll, even if you are the only employee, so that you can pay yourself a mixture of salary plus dividends.
HM Revenue & Customs will send you a form – a CT41g – once the company is set up.
Completing and submitting the form will register the company with HM Revenue & Customs.
The directors usually have to submit personal self-assessment tax returns in addition to the company’s corporation tax return.
The company may need to register for VAT.
This is an area where it is essential to get an accountant involved to ensure that the tax planning and affairs of you and the company are set up correctly from the start.
With thanks to Clear Books Accounting Partner, Elaine Clark, from Cheap Accounting.