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How To Set Up A Limited Company

How To Set Up A Limited Company

Read Time: 6 Minutes

instantprint

09 Nov 2017

When you create a business, there are two routes to take: either set up as a sole trader (or freelancer), or a limited company. Which to choose?! There are pros to both, however a limited company can help to protect you financially and allows you to scale up your business more easily.

A sole trader is responsible for their finances, but doesn’t need a separate bank account and can work out their own income versus overheads. This is fine for some people, especially those who intend to always be a freelancer (without the intention of taking on any staff), but limited companies offer a different way to run a business.

A limited company is legally separate from the business owners and those who run it. That means, should the worst happen and the business fails, any debts remain those of the company and not the individual.

It is initially more costly to start a limited company – but in the long-term it becomes more cost-efficient as you can offset losses on future taxes, easily take staff on, and much more.

A limited company also allows you to create shares and bring on shareholders – which is perfect if you’re looking for investment but have no real offering yet as a startup. Investors can hold a percentage of company shares, which means they can benefit from your business profits too. Setting up a limited company allows you to split income between salary and shares, too, which can help your overall financial portfolio.

Choose Your Company Name

Before you get started on any of the paperwork, you’ll need to set your new company name in stone. This is what goes on all of the official documents, and there are certain restrictions to what you can and can’t use, such as profanities or an existing trademark.

To find out if your name is allowed, check the Companies House register to find any other businesses with the same name. If someone else has the same company name, sorry – time to go back to the drawing board!

There is one exception: a name that is ‘same as’. This can mean a very similar name that has a minor difference, such as punctuation marks, and there are two circumstances where you can register this name:

1) If you already own the company with the very similar name and are registering it as part of a group of companies you own; or

2) If you have written permission from the existing company that they have no objection to you using the same name.

Company names must end in ‘limited’ or ‘Ltd’ to portray the type of business it is. If you’re in Wales, you’re allowed to use ‘Cyfyngedig’ or ‘Cyf’ instead.

Trading Name Versus Company Name

You can have a different name to trade under than your company name. Confusing, right?! This is called a ‘business name’, and is particularly useful if you wish to have more than one business brand running through one limited company. For example, if you cater on a B2B level and also a B2C level, you may wish to have slightly different names to reflect these brands. Your company name does need to be present on your letterheads and websites, but does not need to be prominent.

You can’t use the word ‘limited’ or ‘public limited company’ in your trading name, nor can you use a ‘sensitive’ word or expression unless you get permission. If you don’t want anyone else using your business name, remember to register it as a trademark.

Create Your Bank Account

You’ll need a separate business bank account to run your limited company, as a legal requirement. This is really easy to do, and can even be done online for most major banks. This bank account is where all income and outgoings will operate; if you want to take money personally as a salary it must be processed as a salary from this account – you cannot just take it out whenever you want!

If you want to agree an overdraft, or have a company credit card, you’ll need to provide evidence of your business bank account and also of your trading information, such as your company number and your letterhead.

Assign Your Shareholders

Limited companies have shareholders. If you’re the only person investing in and running your company, you can be the sole shareholder. If there are other people involved, you’ll need to assign them shares, which must be proportional to the capital they invest.

Remember to always keep at least one share additional for yourself, compared to all other shares added together (for example, you have 51 shares, while the sum of the rest equals 49). This is so that any decision which must be run by shareholders, such as changes to company strategy or operational processes, can be overridden as you are the majority shareholder.

Register For VAT
You’ll need to set up your business for VAT costs and reductions; if you’re not confident with this, it’s best to get an accountant on-board to help. They’ll be able to help you work out what is VAT-deductible and assist with your tax returns at the end of the year.

Get A Memorandum Of Association Set Up

Once you’ve done all of the above steps, you just need to send a Memorandum Of Association to Companies House. This outlines why you’ve set up your company, and your intentions regarding how to run it. This document is important, as it may come under scrutiny should HMRC request more detail on a tax dispute or legal proceedings.

Sounds serious, but it can be a very simple document! If you’re not sure, ask a professional to help.

Get Started

With all of the above complete, you’re ready to trade! 

Craig Wassell

About the Author

Hi, I’m Craig, instantprint’s Marketing Executive. I have a passion for discovering new and innovative ways small business owners can give their marketing a boost.