How to set up a limited company in eight steps

Ready to start a limited company but don’t know how? We walk you through the eight steps involved in the process.

There comes a time in the business journey of many entrepreneurs and freelancers where they need to decide whether to stay self-employed or become a limited company. If you are considering setting up a limited company, here are the steps you need to follow.

1) Make sure a limited company is right for you

While there are benefits to being a limited company, there are also more legal obligations. And for some businesses and freelancers, self-employment may be a better choice, at least initially.

So before you set up your limited company, check that it is right for you – or whether you’d be better off starting out or remaining self employed. You can read the pros and cons to each set-up and which might be right for you here.

2) Choose a name for your limited company

Once you know you definitely want to be a limited company, your next step is to choose your company name. You may already have a business name, or one in mind, but that doesn’t necessarily mean you can use that name for your limited company.

Your limited company name cannot:

  • Be the same as another company name (you can search the list here).
  • Contain a sensitive word or expression (unless you get permission here).
  • Suggest a link to government or local authorities.
  • Be considered offensive.

If your chosen company name has already been taken, you’ll need to choose a new one. You can read more advice on finding a name for your limited company here.

3) Decide on your directors

Limited companies need to have at least one director. Directors are legally responsible for running the company and ensuring that your company accounts and reports are prepared properly.

To be a director you must be 16 or over and not disqualified from being a director. You don’t need to live in the UK, but the company must have a UK registered office address. You must also provide a service or correspondence address. Your name, personal information and address are publicly available.

Limited companies don’t need a company secretary, but some companies use them to take on some of the directors’ responsibilities. However it is the directors who are legally responsible for the company, not the company secretary.

You can be a company secretary if you are a director, but not if you are the company’s auditor, or are an undischarged bankrupt.

4) Choose your shareholders or guarantors

Limited companies are usually ‘limited by shares’, which means they are owned by shareholders. These shareholders have certain rights, such as to vote and agree changes to the company.

Some companies are limited by guarantee, which means they have guarantors and a ‘guaranteed amount’ instead of shareholders and shares.

Most companies have what are called ‘ordinary’ shares. These mean that directors get one vote on company decisions for each share, and receive dividend payments.

A company limited by shares needs to have at least one shareholder (this can be a director). If you’re the only shareholder then you will own 100% of the company. There’s no maximum number of shareholders.

The price of shares can be any value. Shareholders must pay for their shares in full if the company is shut down. So, to limit your liability to a reasonable amount, it’s common to choose a low share value, such as £1.

When you register your limited company you will need to provide the following information about your shares:

  • The number of shares of each type the company has and their total value
  • The names and addresses of all shareholders

5) Identify persons with significant control of your company

There is always one or more people who own or make controlling decisions about a limited company. This is known as a person with significant control (PSC).

You need to let Companies House know who your PSC is/are, and the level of their shares and voting rights when you set your company up. And if any of these details change later on, you need to inform Companies House.

A PSC will usually have:

  • More than 25% of shares in your company
  • More than 25% of voting rights in your company
  • The right to appoint or remove the majority of the board of directors

6) Prepare your legal documents

When you incorporate a limited company you need to prepare the following legal documents:

  • A memorandum of association: This is a legal statement signed by all initial shareholders or guarantors agreeing to form the company.
  • Articles of association: These are written rules about running your company, agreed by the shareholders or guarantors, directors and the company secretary (if you have one).

If you register your company online, you won’t need to write your own memorandum of association. Instead, it will be created automatically as part of your registration.

For your articles of association, you can either use standard articles (known as ‘model articles’) or write your own and upload or send them when you register your company.

7) Make sure you’re aware of your filing obligations

As the director of a limited company, you are responsible for ensuring you file all the required documents on time. These include records about the company, and financial and accounting records.

HMRC may check you’re paying the right amount of tax, so it’s wise to hire an accountant when running a limited company. Not only will they ensure you are paying the correct tax, but they’ll know what documents you need to file, when, how and can submit them for you.

Remember that you also need to keep company records for at least six years from the end of your last company financial year. You can read more about the records you need to keep, and for how long, here.

8) Register your limited company

When you’re ready to become a limited company, you will need to register with Companies House. To do this you’ll need an official address and a Standard Industrial Classification (SIC) code. Your SIC code identifies what your company does; you can find out what yours is here.

Once you have registered your limited company you’ll get a certificate of incorporation which confirms your company legally exists and shows your company number and formation date.

Most people also register for Corporation Tax at the same time as registering with Companies House. if you aren’t ready to do this you can register separately with HMRC after you’ve registered your company with Companies House.

Get help to set up your limited company today

It can be daunting setting up a limited company yourself. If you’re ready to incorporate your business but need help, you can use a company like 1st Formations. They’ll walk you through four simple steps to setting up and registering your company:

  1. Company name: Check your company name is available for registration.
  2. Choose a package: Find the right package for your needs.
  3. Checkout: Proceed to checkout (you can also add additional services).
  4. Company details: Fill in your company details and they’ll do the rest.

Packages range from as little as £12.99 to register your company and get your digital documents, to more comprehensive packages that include registered addresses, VAT and PAYE registration and confirmation statement.

If you’re just getting started and want to secure your limited company status, this might be a good option for you. You can then find an accountant to prepare your accounts later on.