Setting up a Company

If you are ready to start a new business then setting up a limited company is straight forward and has advantages as opposed to being a sole trader.

General business advice for starting a new business is obtain company registration as a limited liability company but whatever you choose you should seek professional advice either from a company formation agent or your accountant.

Limited Liability Company Advantages

Setting up a limited liability company in the UK has many advantages over being a sole trader as a one man band self employed person but does it itself present different challenges from a time and paperwork view point as well as legal issues once someone is named as a director.

The main reasons people set up companies is by the name "limited liability" which simply means any liabilities the company has are in the name of the company itself and the shareholders nor the directors assets can be touched. This doesn't mean the company can be reckless in its trading and directors also have responsibilities. The dealings between the company and directors are effectively at arms length as the company is the trading entity so if you are a one person outfit like a contractor for example who sets a company up then all company trading is in the company name and you as the director and probable sole shareholder deal with the company. The company is not you.

All profits made and all debts incurred belong to the company and no one else. The profits are distributed generally through dividends but of course the company will have employees and may pay them a salary in the normal way. The company will pay taxes on the profits in the way of corporation tax which is currently at 22% for small ltd companies.

There are two types of limited companies in the UK - a Public Limited Company or PLC which trades on the stock exchange or a private limited company or ltd which is privately owned and that we will discuss more about in this article here.

Limited Liability Company Checklist

If you are thinking of registering a new private company in the UK then the following applies by UK law mostly under the Companies Act 2006.

• Although there must be at least one shareholder the shares can not be offered to the public if it's a private limited company
• The company may have a company secretary but this is not a requirement under amendments to the companies act 2006 which are in force from Oct 1st, 2009
• Directors of the company must be aged 16 or over
• Private limited companies must file accounts each year at companies house before 9 months after their year end
• If accounts are not received in time a penalty of £1,500 is charged
• You do not need to hold an annual general meeting
• You need to complete an annual return of your company information such as address, directors and shareholders each year
• Shareholders can be paid dividends from the company

Plus all businesses that have a turnover in excess of a certain amount have to be VAT registered.

Registering a New Limited Company

A brand new company can be registered online in the UK either at companies house or via many of the online registration agents for a nominal fee usually around £30. Many have what they call "off the shelf companies" where these have already been registered and are effectively trading so if you don't have a name you can pick one of these and the shareholding will be transfered to you. This can take a matter of hours. If you have a specific name to registered the registration process is again instant but may take a few days to complete.

Once completed you'll receive some forms about your company which you would have completed yourself or have your agent complete them and need to understand and keep safe.

• Certificate of Incorporation of a Private Limited Company with your unique company number is provided once the company exists
• Memorandum of Association that has the company names and location
• Articles of Association which now has the company's objectives and liabilities (which were previously in the Memorandum)
• Form 12 states your company complies with the Companies Act 2006
• Form 10 lists the shareholders and shareholding in the companies together with directors and all names and addresses

Once your have finished the formalities of setting up a limited liability company then the company is registered and can start trading.

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