How to start a limited company

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While Brexit has introduced some uncertainty, the United Kingdom remains an attractive place to start a business. Running your business through a limited company is one of the most tax efficient ways to do that. It involves more administrative work than being a sole trader, but this is offset by the benefit of not putting your personal assets at risk in case the business fails. Below is a summary of strategic and practical points to consider before you go and register your limited company with the Companies Registrar.

Decide who will own the company

In other words, you have to decide who is going to be the company’s shareholders. When setting up your company, you will need to specify how many shares you have and who they belong to. Who owns your company’s shares, and in what proportions, determines who owns the company.

More about issuing shares and shareholders here.

Decide who will run the company

All companies must have at least one director who runs it.  Your directors do not own the company (unless they are also shareholders), but they are responsible for day-to-day management and decision-making. Most company founders will be both shareholders and directors of their company if they are involved in day-to-day management.

Whoever you choose, it is crucial to ensure that your directors understand what their duties are before they are appointed. All directors owe duties to their company, which regulate how they should carry out their role. These include avoiding situations where their personal interests conflict with those of the company, and ensuring their actions promote the success of the company and benefit its shareholders.

More about who can be a company director of a UK-based company here.

Choose a company name

Every company must have a registered name. There are certain legal requirements your name must meet to be accepted by Companies House. It cannot be too similar to any existing company name, and it cannot contain certain restricted words and characters. Before you start your new company, You should also ensure any name you intend to trade under will not infringe on the rights of other businesses.

More details on how to choose a company name here.

Choose a registered office

Every company must have a registered office. This is your official address for correspondence. You don’t need to actually run your business from the address you choose, but it is important that you access the post there regularly.

Choose your articles of association

All companies must have articles of association. These are the rules by which your company will be managed internally. Most new limited companies use the ‘default’ articles of association under company law, which are known as the model articles.

You can find a full content of the model articles for private companies limited by shares here.

If your business wants to use ‘alphabet’ shares you will have to amend your articles of association via a special resolution of the shareholders so that the rights attached to each different class of share is added. Such an amendment to your company’s articles is essential in order to circumvent the ‘model article’ and ‘Table A’ provisions that demand dividends be paid in proportion to the number of shares held.

The use of alphabet shares could help a business to pay shareholders different amounts of dividends depending on what class of share they own. Alternatively, alphabet shares are used in companies owned by families or in joint ventures so as to give certain shareholders power to make important decisions (for example to appoint a director).

You can download articles of association with alphabet shares here for a fee.

Incorporate your company

It is easiest and cheapest (£12) to incorporate online and register your company with Companies House and HMRC (for corporation tax and PAYE) simultaneously.

Additional resources

In conclusion, we are happy to recommend* these two amazing online resources which contain a wealth of useful information and can help you create individually tailored legal documents for administration and running of your limited company:

Sparqa Legal – Your Digital Lawyer

Jonathan Lee Network

*Disclaimer: the above resources include paid as well as free services. We do not gain any commissions from promoting them. We recommend them only because we use it ourselves and think it provides outstanding quality and value.