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There are two types of limited company – those that are publicly traded on the stock market (known as a public limited company or plc) and those that are privately owned (identified by the abbreviation Ltd at the end of their name). It’s highly unlikely you’ll be starting life on the stock exchange so we’ll concentrate here on limited companies.
A limited or limited liability company is very different to becoming self-employed. If you’ve become self-employed or a partner, you can be held personally liable – outstanding debts can be met from your personal assets.
Registering and running a limited company requires more legal administration than becoming self-employed or entering into a partnership. However, while the business owner is personally responsible for any debts incurred by a sole trader business, a limited company is a separate legal entity to the company directors. Profits and losses belong to the company, and the business can continue regardless of the death, resignation or bankruptcy of the shareholders or people who run the business.
Limited companies pay corporation tax on their profits and company directors are taxed as employees in the same way as any other people you employ to work for the company.
Your personal financial risk is restricted to how much you invested in the company and any guarantees you gave when raising finance for the business. However, if the company fails and you have not carried out your duties as a company director, you could be liable for debts as well as being disqualified from acting as a director in another company.
Steps to registering a limited company are as follows:
- Decide whether you can register the business yourself or if you need outside help.
- Decide on the company officers.
- Choose a name for the company.
- File the correct documents with Companies House.
- Inform the authorities.
- Start trading!
help registering your company?
Although it is possible to register a limited company yourself, unless you’ve done it before you’re probably going to need to engage the services of either a solicitor, accountant, chartered secretary or a company formation agent.
Formation agents, such as the National Business Register, use their own software that works directly with the Companies House systems. If you want to register your company electronically (most are registered this way) you will need to have the specific Companies House electronic interface – hence the need for a formation agent.
However, you can still deliver the physical documents directly to Companies House without the need of a formation agent or specific electronic interface.
Prices for formation agents can cost anything up to around £200 depending on the level of service you require. A key advantage of using a formation agent is the advice they can give you on the compiling of the necessary documents and the right structure for your business. Companies House does not provide this service when registering, so if you are unfamiliar with the process it’s advisable to get help to avoid errors.
Going through the registration process yourself can be time-consuming, especially if you make a mistake, and Companies House staff will not advise you about specific matters such as the content of the memorandum and articles.
Alternatively, you could also get assistance from an online registration company. The standard service usually costs £80-£100 including fees, but since some documentation needs to be posted, registration takes three to eight days. This option is usually cheaper than using a formation agent, although you will not receive the same level of personal service.
Finally, you can buy an ‘off the shelf’ company. You will receive a ready-made limited company that has designated company officers listed on the paper work. You simply transfer your name, and the names of any other company directors, company once you receive your documentation.
The process can be completed on the same day and many accountancy firms will have several ready-made limited companies which they can sell to you. This is the quickest option, and with the exception of registering the company yourself, can often be the cheapest too.
Picking some Company Officers
A private company must have appointed company officers at all times. Company officers are the formally named directors and company secretary as stated in the Articles of Association.
It is a legal requirement for company officers to be in place at all times and for their names and current addresses to be written on the registration documents. If there is a change in company officers, Companies House must be informed straight away.
All private limited companies must have at least one director and a company secretary. At present, sole directors cannot also act as company secretary. However as of October 2008, it will no longer be required by law for a private company to have a secretary.
Company directors
Company directors must manage the company's affairs in accordance with its articles of association and the law. Generally, anyone can be appointed company director and the post does not require any formal qualifications. However, there are a few exceptions.
You are prohibited from being a company director if:
- You are an undischarged bankrupt or disqualified by a court from holding a directorship.
- You are under 16 (this only applies in Scotland).
Company directors have a responsibility to make sure certain documents reach the registrar at Companies House. These are:
- Accounts.
- Annual returns.
- Notice of change of directors or secretaries.
- Notice of change of registered office.
Directors that fail to deliver these documents on time can be prosecuted and are subject to fines of up to £5,000 for each offence. An average 1,000 directors are prosecuted each year for failing to deliver accounts and returns to the Registrar on time so it’s not a responsibility that can be taken lightly or ignored.
Company secretaries
The duties of a company secretary are not specified by law but are usually contained within an employment contract. For private limited companies, secretaries are not required to have any special qualifications, however this is not the case if you decide to change your company to a public limited company.
The main duties of a company secretary are to:
- Maintain the statutory registers.
- Ensure statutory forms are filed promptly.
- Provide members and auditors with notice of meetings.
- Send the Registrar copies of resolutions and agreements.
- Supply a copy of the accounts to every member of the company.
- Keep or arranging minutes of meetings.
Choosing a company name
When forming a limited company you need to pick a company name to register the business with.
You’ll need to establish your name before you think about filling out your registration documents as there are certain rules to consider.
The name you choose for you company must:
- Feature the word ‘limited’ or ‘ltd’ at the end.
- Not be made up of certain sensitive words or expressions (listed by Companies House) without the consent of the Secretary of State or relevant government department.
- Not imply a connection with central or local government.
- Not be offensive.
- Not be the same or similar to one that appears in the Index of Names kept by Companies House.
You can search the index of business names already registered on the Companies House web site free of charge. If your chosen name is too similar to another, an objection can be lodged within 12 months following the incorporation of your company and you could be forced to change it.
Companies House
Forming a limited company – the required documents
When registering a limited company there are four documents which must be provided to Companies House. These are:
a) Memorandum of association.
This document sets out the following:
- The company’s name.
- Where the company’s registered office is located – England, Wales or Scotland.
- What the company will do – this can be as simple as: ‘to conduct business as a general commercial company’
b) Articles of association.
Here’s where you set out the rules for running your company. You must state how shares will be allocated and transferred, how the directors, the secretary and your meetings will be governed. The standard document used is Table A, of the Companies Act. However, if choose an amended version of Table A, you must submit this version when registering. Once your company is incorporated you can only make changes if the holders of 75% of the voting rights in your company agree, so it pays to get this right at the outset.
c) Form 10.
This document gives details of the first director (s), company secretary and the address of the registered office. Company directors must also give their name, address, date of birth, occupation and details of other directorships held in the last five years. For Northern Ireland use Form 21
d) Form 12.
This document is the statutory declaration of compliance with all the legal requirements of the incorporation of a company. It must be signed by either one of the company directors or secretary named on Form 10, or the solicitor forming the company. The signing of the document must be witnessed by a solicitor, a commissioner for oaths, a justice of the peace or a notary public. Form 12 must not be signed and dated before any of the other documents are completed, signed and dated.
Where can I get these documents?
Form 10 and Form 12 can be obtained for free from the Companies House web site.
The memorandum and articles of association can be obtained from legal stationers, accountants, solicitors or company formation agents. Our preferred local accountant, Neil Hooton Accountancy Services Limited can provide free copies of the Memorandum and Articles of Association.
Cost of submitting the documents
The standard fee to register a limited company is £20 but for a same day service it costs £50.
If the registration documents are filed using the Companies House software filing service the fee is £15 for standard and £30 for same-day registration. However, to file electronically you must either purchase the suitable software, develop your own or go through an agent.
Informing the authorities
This step is often overlooked, but each new Companies House registration’s first named director is automatically sent to the HMRC. Usually the HMRC are kind enough to write to the director soon after incorporation reminding the director of his or her duties in informing the HMRC that a trading company has been set
go to an accountant and ask them kindly to send a CT41g form to HMRC at
HMRC Corporation tax Enquiries
Stone Cross House
21-27 Churchgate
Bolton
BL1 1YA
01204 367 880
Or visit the HMRC web site http://www.hmrc.gov.uk/ctsa/regnewbusiness.htm
Start trading
Now fully registered, Matthew is free to start trading but faces a new set of dilemma. Thankfully, out of the scope of this web site, but well within the parameters and capabilities of a good business adviser.
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