Are you planning to set up a limited company? Do you want to know what is involved in setting one up and what costs are involved? If yes, then stay tuned as we will discuss the procedure of setting a limited company and everything it entails.
So, let's get started by discovering what a limited company is.
What Is A Limited Company?
A limited company is a company ‘limited by shares’ or ‘limited by guarantee’.
Limited by shares
Limited by shares companies are usually businesses that make a profit. This means the company:
is legally separate from the people who run it
has separate finances from your personal ones
has shares and shareholders
can keep any profits it makes after paying tax
Limited by guarantee
Limited by guarantee companies are usually ‘not for profit’. This means the company:
is legally separate from the people who run it
has separate finances from your personal ones
has guarantors and a ‘guaranteed amount’
invests profits it makes back into the company
In the UK, a limited company must be incorporated at Companies House. This confers the status of being a separate ‘legal person’ from the people who run it, with a unique company registration number.
Thereafter, it is governed by the requirements of the Companies Act (and the company's own articles of association). It must send regular "returns" of information to Companies House. That information about limited companies is held on the public register, which is available for anyone to see. Even if a limited company has only one person involved, who is the sole shareholder and lone director, it’s still a distinct legal entity, legally separate from that person.
This is different from a sole trader or general partnership, which are both unincorporated businesses where there is no legal distinction between the owner and the business. Therefore, if the business fails or cannot meet its liabilities, the owners will be personally responsible for the full sum owed.
Benefits of a Limited Company
A limited company is the one that limits the liability of the shareholder for unpaid debts and establishes itself as a separate legal identity. This is the major reason why a limited company is a popular structure for a small business. The owners of the company are protected by ‘limited liability’, so unless there’s fraud or other serious wrongdoing the amount they have to lose if the company fails is strictly limited. If the company cannot meet its debts or liabilities, the owners usually risk losing only:
The value of the shares they hold;
The amount of any guarantee (for members of companies limited by guarantee);
Any amounts they’ve already invested into the limited company; and
The amount of any personal guarantee they’ve made to the company.
Costs Associated with a Limited Company
The costs associated with registering a limited company, involve filing fees and possibly paying a company formation specialist similar to the ones at Companies House, the UK's registrar of companies.
However, if you are confident of the legal process and would like to do this task yourself then you can easily set up your business without relying on anyone else. On the flip side, if you don't know the route or don't have the time to handle legal procedures, you can hire an experienced company to do it for you.
If you plan to hire a specialist to do legal work for you, then the overall cost of setting up the corporation depends on how much of the process you will handle on your own and how much will be handled by the specialist.
There will also be a number of ongoing and variable costs for your company that will need to be considered, such as administration costs, accountancy fees, or any penalties that may have to be paid for late submissions.
How Can I Register on My Own?
To register a limited company on your own you will first need to find out what SIC code your business falls under. The SIC code (standing for Standard industrial classification of economic activities) identifies what type of business you will be operating. Next, you will have to register your company with Companies House - to see what is involved - click here
By registering with Companies House you will also be enrolled for Corporation Tax with the UK government, which is the tax that UK businesses have to pay.
Once registered you will receive a ‘certificate of incorporation’. This confirms the company legally exists and shows the company number and date of formation. You can also register for PAYE tax at the same time. This is especially useful if you know that your company will be employing staff (including yourself if you’re the only director).
You’ll need at least 3 pieces of personal information about yourself and any other shareholders or guarantors, for example (town of birth, mother’s maiden name, father’s first name, telephone number, national insurance number, passport number, etc).
The £12 registration fee can be paid with a credit/debit card and the entire process is normally completed with 24 hours.
How Can I Get Help Registering a Limited Company?
If the above seems a little daunting then you can always approach a company that sets up companies on other people's behalf. There are a number of such companies available - we recommend www.companiesmadesimple.com.
They will look after the entire process and can provide a number of additional services (like offering rentable meeting spaces, setting up a website, etc) but these will obviously come at an additional cost.
The process is very quick and your company should be registered in just hours. Costs depending on level of assistance required will vary but should be in the region of £40-100.
Your Ongoing Responsibilities
As a director of a limited company, you must:
follow the company’s rules, shown in its articles of association
keep company records and report changes.
Submit a PSC (Person of Siginificant Control) statement to Companies House (annual)
file your accounts and your Company Tax Return (annual)
tell other shareholders if you might personally benefit from a transaction the company makes.
pay Corporation Tax
You can hire other people to manage some of these things day-to-day (for example, an accountant) but you’re still legally responsible for your company’s records, accounts and performance.
Final Words
It is a common myth that setting up a company is complicated and is expensive. You might be surprised to know that you can register a new company for as low as £12. The truth is the hard work is in the running of that business, which requires proper administration. Additionally, the directors of the limited company have more statutory responsibilities as compared to people that are either self-employed or in a partnership.