Launching a business is a whirlwind of a time. It’s a moment you’ve probably envisioned for years — from the products or services you’ll sell to your business name — maybe even the logo and branding.
One thing you’ve probably not been daydreaming about, however, is the accounting and the legal side of setting up.
It’s a rare entrepreneur who loses themselves in spreadsheets and forms.
Unfortunately, the less glamorous side to setting up a business is unavoidable. Along with establishing a system for your finances, one of the first things you have to do when getting your business live is register your business with the government.
If you’ve never done this before, it can be hard to know where to start. There’s a lot of jargon and boxes to tick.
So, in this article, we walk you through the process step by step and direct you to resources that can help you complete the task with as little effort as possible.
But first things first …
What is a limited company?
A limited company is a form of business structure that’s similar to an LLC (limited liability company) in the USA.
With this structure, the company is considered legally separate from the people who run it.
The word ‘limited’ implies ‘limited liability.’ This in turn means that the people who run the company are not liable for any financial losses made by the business.
It’s just one of a few types of business structure in the UK. The main two types are:
- Limited company
- Sole trader (we go into this in more detail next)
The other types include:
- Business partnership, where two partners are jointly responsible for a business, including any losses it makes
- Unincorporated association, where a group of people like a sports club sets up an organisation to make a profit
To read more about different business types in the UK visit the Government website.
Related: How to get a business email address
The 8 steps of setting up a limited company
One of the most attractive qualities of this business structure is that it protects your assets from seizure, should you file for bankruptcy.
Step 1: Make sure a limited company is right for you
Registering your business as a limited company is not the only way to set up in business in the UK.
Another popular way to begin your journey is as a sole trader.
As mentioned above, the main difference between the two entities is that a limited company is classed as separate from the people who run it. If you set up as a sole trader, you’re personally responsible for any losses your business makes.
The pros of setting up as a limited company as opposed to a sole trader include:
- Limited liability – your personal assets are classed as separate from your business assets, so you stand to lose less if the worst happens
- Better access to credit
- Extra tax benefits
The cons of setting up as a limited company include:
- More reporting, paperwork and deadlines
- Slightly more time-consuming to set up
- Slightly more costly to set up
- Getting your head around corporation tax
Step 2: Pick a name
While a sole trader can trade under their own name — e.g. Sam Smith — a limited company has to have an official name.
However, this name must be unique — you can’t use the same name as another registered company unless you have written confirmation that the existing company has no objection to your new name.
There are strict rules as what counts as a unique name. For example, you won’t be able to register EZ Electrix 4U Ltd if Easy Electrics for You Ltd exists. Note that changing the punctuation or characters in a name does not make it unique.
To find out if your desired company name is already taken, just carry out a quick search of the Companies House register.
Editor's note: Every business needs a custom domain name to use for their business email and website. Find out if your business name is available as a .uk or co.uk here.
Step 3: Name your director/s
Every limited company must have at least one director. This person is responsible for the company’s records, accounts and performance.
Of course, you can hire other people to help with all these areas, but the director is legally responsible for them.
Step 4: Name your shareholders
Every company needs at least one shareholder, but this person can be a director of the company, too.
At this point, you’ll also need to list anyone who has ‘significant’ control over your company. Significant control means a person who has 25% of the company shares or voting rights within the company.
Step 5: Prepare your documents
When you register a limited company, you have to supply two documents that outline how your company is to be run. These are:
A memorandum of association. This is a legal statement that shows that all shareholders agree to the formation of the company. It needs to be signed by all initial shareholders. You can find a template for this document on the Government website.
Articles of association. This is a list of written rules on running the company. As with the memorandum of association, this document must be signed by all initial shareholders. This list can include everything from details of how a directors’ meeting should officially be called to information on the sorts of expenses directors can claim. Example articles of association can be found on the Government’s website.
Step 6: Get your recording in order
When you run a limited company, you are required to keep records of the company itself and the company finances.
These records must keep up-to-date details of the following areas of your company:
- Who the directors, shareholders and company secretaries (if any) are
- The results of any shareholder votes and resolutions
- Details of loans and repayment dates
- Details of share purchases
- Details of any loans or mortgages secured against the company’s assets
- Thorough accounting records
To read more about these records, visit the Government website.
Step 7: Register with Companies House
To finally register your company with Companies House you’ll need to provide an official address and choose a SIC code.
A SIC code sums up what your company does.
For example, 10520 is the SIC code for companies that manufacture ice cream, while 43310 is plastering.
Company registration costs £12 and your company will usually be officially registered within 24 hours.
Step 8: Register for corporation tax and PAYE
While you don’t have to register for corporation tax or PAYE at the exact time you register your company with Companies House, it’s a good idea to do the two things together.
You can register for Corporation Tax through the Government website. This task has to be done in the first three months of you starting your business.
Registering for PAYE can also be done on the government’s website. You might not have any staff, but you will have to register for PAYE if you are paying yourself a salary as a director.
Related: How to write a business plan
Starting a limited company - in conclusion
On the whole, launching a company is an exciting time. But the admin associated with setting up a business can feel like a bit of a chore.
The good news is, it takes just eight steps to get yourself registered as a limited company.
If you have the right information to hand — your company name, address and details of the director and shareholders — then you’ll be able to carry out the task fairly quickly by following these steps:
- Double check a limited company is right for you
- Pick a unique name
- Name your director/s
- Name your shareholder/s
- Prepare your memorandum of association and articles of association
- Get your records set up
- Register with Companies House
- Register for corporation tax and PAYE
Then celebrate — you’re officially on your way!
Zoe Ashbridge contributed to this post.
This post should not be taken as legal or financial advice. Always consult legal, financial or other relevant professionals before making important business decisions.