Reviewed for 2018
Want to go limited but don't know where to begin? Read on to discover how to start a limited company.
The bulk of the UK’s self-employed operate as sole traders; this legal structure is the choice of many because of its simplicity. As it’s easy to set up and brings relatively few legal responsibilities, working as a sole trader suits many aspiring and established businesses.
On the flip side, sole traders face unlimited liability, meaning that there’s no legal distinction between them and their business. In other words, should they mount up big business debts they’ll be left personally liable - a worrying prospect for anyone taking substantial financial risks.
Elsewhere, sole traders aren’t always tax efficient and, depending on your circumstances, setting up a limited company could be a better option. What’s more, limited companies also offer limited liability, meaning that there is a legal distinction between you and your business.
Does starting a limited company sound appealing? Well it’s always best to speak to an accountant first, as there are other things to consider before taking the plunge - going limited brings more paperwork for one. Nonetheless, if it still sounds interesting, here’s our guide to setting up a limited company...
In contrast to sole traders, no two limited companies are allowed to share the same moniker. So you’ll need to come up with something fresh from the outset. Perhaps take a look at our article about the UK's best business pun names for some off-the-wall inspiration, but bear in mind that your business’s title will need to meet strict criteria.
Above all else, Companies House won’t allow anything offensive, whilst they also have a long list of ‘sensitive words and phrases’. You can find a handy list of those here, and a guide to naming your company on Gov.uk. Perhaps double-check your name’s availability online too, through a domain checker. What with the increasing opportunities on the web, you’re ideally going to want to choose a domain that shares your company’s name.
Every limited company requires at least one director, but they can have more if they like. In fact, there’s no official limit on the amount of directors a limited company can appoint.
When setting up a limited company, the director must be 16 or over and their responsibilities will range from legal to financial. As stated on Gov.uk website, as a director you must:
Flout these duties - the tax ones in particular - and you could end up facing penalties, so make sure you’re prepared to take them on before you incorporate. A good accountant can help on the tax front, whilst some insurance can keep your limited company protected. Explore our limited company cover options on our dedicated limited company insurance page.
Once you’ve settled on your name and decided on your directors, you’ll be in a position to incorporate your new limited company.
You can do this via the Companies House website for £15, or through a variety of competitively priced incorporation websites. Some accountants will even cover the cost for you, as part of their limited company accounting packages.
When incorporating you’ll need to provide Companies House with the residential address of each director, or a 'service address' if you’re keen to keep your details off the public register. Elsewhere, you’ll need to provide a registered company address and a statement of capital - essentially an indication of the share structure of your new limited company.
All in all the process of setting up a limited company can be done pretty quickly. Do bear in mind your extra responsibilities though, and speak to an accountant if you’ve got any questions. Their expertise can be invaluable in guiding you as to whether starting a limited company is right for you.
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