Could your business be next to join the over 4 million companies registered in the UK?
Registering as a company provides you with key advantages as you begin trading. Find out the 3 key steps to follow to successfully launch your new business venture in this article.
What is a limited company?
A Limited Company is a company ‘limited by shares’ or ‘limited by guarantee’, which means that the business owners are only legally responsible for the shares they own in the company.
Companies registered as limited by shares are allowed to keep profits they make after tax. Companies limited by guarantee must reinvest all of their earnings back into the company in some way. That’s why these businesses are sometimes referred to as ‘not-for-profit’.
Companies limited by shares have shareholders, while those limited by guarantee have guarantors. For the rest of this article, we’ll provide steps for registering companies limited by shares (ones that can retain profit after taxes) as they are more common. If you would instead like to register as a company by limited guarantee, information about the key differences is available here.
Limited companies are considered legally and financially separate from the people who own them. This distance between companies and their owners can be advantageous if businesses struggle to finance their debts, as their owners are not considered liable. However, there is more of an administrative burden placed on companies as they operate.
We’ll discuss what you need to do below. If you’d like to find out more about business structure options, read our article Sole Trader or Limited Company: How to set up your business or contact local business support schemes.
How to register your limited company
To set up your limited company, you should follow the steps below
Step 1: Choose a name
Choosing a business name (if you haven’t already got an idea for one) can be fun, but there are guidelines to follow. Names of companies must be unique and end in ‘Ltd.’ or ‘Limited’, and cannot include offensive or sensitive terms.
Your company’s name can’t be one that’s taken already. Check if the name you want for your company’s name is taken already using the Companies House and trademark portals. Finding an available name might take some time, so make sure you have some back-ups and apply quickly to make sure you get the one you want.
Offensive and sensitive terms
‘No offensive words’ is self-explanatory, but ‘sensitive terms’ can be confusing at first. Companies House won’t allow names of businesses to include protected terms like ‘Accredited’ or suggest relationships with governments unless you have permission. You can check which words you’ll need permission to use and who to contact here.
Step 2: Register the people involved
Limited companies must choose a director and register any additional shareholders involved in the business. As you register yourself and/or the people involved with your company, you’ll need to confirm three of the following details for each person:
- Town of birth
- Mother’s maiden name
- Father’s first name
- Telephone number
- National Insurance number
- Passport number
Choosing a director
Limited companies must appoint a director who is responsible for the company’s operations and legal compliance. Make sure you’re aware of the full responsibilities and requirements of company directors before you declare them. If you’re setting up your business on your own, you can be both the director and only shareholder disclosed.
As companies grow, some appoint a company secretary whose role is to help the director manage their responsibilities. Company secretaries also have to meet requirements. However, the company’s director is still legally responsible regardless of who performs the company’s duties.
As mentioned previously, if you’ve registered yourself as the company’s director, you can also be its sole shareholder. As you expand the company, any additional shareholders must be declared.
No matter how many shareholders there are, you must declare the structure of your company’s shares and their values. There are different types of shares and each company will have different arrangements with their investors, which is why it’s essential to clarify what your company has arranged.
Similarly, companies must disclose people with significant control (PSC). These are people who own or control the company via either owning more than 25% of company shares or voting rights within a company. Because of this, companies have more than one PSC. You can find out more about identifying PSC within your company as you register here.
Step 3: Preparing registration documents
In order to register a company, you’ll need to draft two important documents before you register: a ‘memorandum of association’ and ‘articles of association’.
A ‘memorandum of association’ is signed by all company shareholders, indicating they agree to form the company. If you register your company via Companies House online, your company’s memorandum of association will be automatically generated from the details you provide.
A company’s ‘articles of association’ are the rules, agreed upon by the director, secretary and shareholders, that indicate how the company is to be run. You can write your own or use templates available online.
Importantly, different articles of association are required for a community interest company (CIC or ‘social enterprises’). They must specify that the company is to benefit its community rather than its owners. A template for this company type is available here.
Keeping trading records to be compliant
Once you’ve registered and you’re successfully trading, you’ll need to keep well-documented accounting records, sometimes for as long as six years.
This will include records of all revenue, expenses, assets, debts, and records of who the company bought and sold to and from. If your company is involved in retail sales, you will be partially exempt from recording every sales transaction as this is difficult at high volumes. Find out more about the specific level of record-keeping your business is required to meet here.
Make business admin simple from the start
Establishing a business has its challenges. Countingup can help. Our business current account and accounting app makes it easy to keep on top of your financial records: it automates expense categorisation and prompts you to take photos of receipts to store as records when you make a purchase.
Start your business on the right track. Find out how Countingup can help here.