If you’re thinking about how to set up a private limited company in the UK, this article is for you. This article contains tips and advice on not only how to go about setting up a private limited company but also what to watch out for after it’s been filed.
Get An Office Address
When starting a private limited company it is important that you have an office address. This has to be a physical UK registered office address and not a P.O box. One way to do this is to find office space which you will be able to rent or lease – depending on your circumstances. If you are renting the property then there will need to be certain documents signed between both parties for example an Assured Shorthold Tenancy Agreement. It is also worth noting that this is the address where all official correspondence with Companies House will be sent e.g. filing documents, letters etc.
Pick The Right Name
When naming a company it is important that the name of the proposed business isn’t too “generic” as this may cause problems with branding later down the line, also it’s important that other companies aren’t using similar titles as there could be confusion between brand names which could cause problems further down the line. For example, if your business was called “Jones Plumbers” and another business was called “Jones Plumbing Services” later down the line there may be confusion between the two businesses which could cause problems.
It is also important that you avoid using certain words when naming your business which could cause trouble later down the line due to them being trademarked. These words are mainly ones which are commonly used in everyday language for example “bank”, “cash”, or “express”.
Pick The Right Company Structure
When setting up a private limited company it is important that you pick the right type of company structure, there are three main types of structures when setting up a private limited company which are the following:-
- Limited by Shares – This type of setting up means that when you set up your business you must issue at least one share to another person with membership rights, this is normally done through an intermediary agent e.g. Companies House who will be able to help with issuing shares in your business.
- Limited by Guarantee – This type of set-up means that when filing your company you must have at least one member who guarantees to contribute a sum of money in the event of your company being wound up, again this is normally done through an intermediary agent e.g. Companies House who will be able to help with incorporating your business.
- Unlimited – This type of set-up allows there to be no share or contribution capital involved in your business which means that the members are liable for all debts incurred by the company should they go into liquidation.
Filing Procedures For The Company
There are certain procedures that need to be filed before starting a private limited company, these can include:-
- The Memorandum Of Association – This document sets out the main rules for your business which must be included in it.
- The Articles Of Association – The articles determine how your business is to be run, these are normally written by you but do not need to be filed at Companies House unless required e.g. if there are changes to them or your company name needs changing.
- Memorandum Of Good Standing – This document shows that the members of the company are “fit” and “proper” people who have everything necessary for their intended purpose e.g. being part of a limited company.
- Confirmation Statement – This is a short statement that shows the company’s details as they currently stand with Companies House.
All of these documents can be filed by yourself or through an intermediary agent e.g. a solicitor, accountant, etc. There are currently some companies that will file all of these documents for you on your behalf using their own legal team, this saves time and money.
Keep Financial Records & Prepare Accounts
When it comes to running a private limited company it is important that you keep good financial records in order to be able to file your accounts when they are due. You will also need to make sure that there are enough funds in the company bank account for them to last 12 months, this means you can’t pay them all out at once. It is also worth noting that holding funds in the company bank account for too long (normally more than 12 months), or not having any funds being held by Companies House could get you into trouble with HMRC if they believe that your business activity has dried up which could lead to investigations.
At some point, usually after one calendar year of trading or when you have a large change within your company, you will need to file your accounts with Companies House which includes a ‘balance sheet’ and an ‘income statement’. Accounts can be filed using different methods depending on the size of the business which includes:-
- Small Company Accounts – For companies that have been trading for under 12 months or have a turnover of less than £2.8million per year.
- Medium-sized Company Accounts – For companies that have been trading for under 24 months or have a turnover between £2.9 million and £11.5 million per year. Large
- Company Accounts – For companies that have either been trading over 24 months or have a turnover of over £11.5million per year, these accounts are more complex and require auditing.
The above does not take into account VAT returns.
Annual Return & Meeting Of Members
After a year of trading, it will be necessary to complete an annual return that shows your membership details and other important information. This is normally expected around 1 month before the anniversary date of the company. If you get this done through an intermediary agent such as a solicitor or accountant they will normally charge for this service.
Once your accounts have been filed you should also prepare a meeting of members where in theory anything could be discussed.
Set Up Employees & Directors
If you are just running your company alone then there is no need to have employees but if you are looking to expand the business at some point you will need to take on staff. There are three ways in which you can employ people depending on how many hours per week they work:-
1) Limited Company Contractor – This is where a person works through their own limited company, this allows them to claim expenses and not pay any NI contributions, etc. However, there are strict rules about what expenses can be claimed.
2) Company Employee – This is where you pay an individual a fixed monthly salary, this means that they must be employed in some capacity and typically have access to benefits such as sick pay, etc. The only requirement here is that they have an NI number.
3) Director – It’s possible to be the director of your own company too, however it would not be prudent in most circumstances to have the same person being the director and ’employee’.
So there you have it, a guide on how to set up a private limited company in the UK. It might seem like a lot of work but once everything is set up and running, things should be fairly straightforward from here onwards as long as you keep on top of expenses and payments, etc.
