So you’ve decided to start forming a limited company?
The big question is, where do you begin?
Thankfully the process of forming a limited company is very straightforward, more so than most people think.
Perhaps the best news though is that it is something you can do yourself, in just a few minutes, and it can cost you less than £20!
Its a common misconception that you need to ask your accountant to form a limited company for you. Whilst they will offer this service, it will usually come at a cost of between £50 and £250.
There is no reason for you to go down this route since this page contains all the information you need to apply for your limited company in under 10 minutes.
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Step 1: Choose Your Company Name
Often the most difficult step, choosing the right name for your company is something that can easily drag on for hours, if not days or weeks! Ideally you want the name to be memorable, convey the right message to your customers and perhaps be related to the market you are entering.
However, what you need to remember is that it is only the official name of your company and does not dictate that have to use that as your brand name when approach customers (as you can always be ABC Ltd ‘trading as’ XYZ).
Because of this, your chosen company name is perhaps not as important as you may have thought and so do not spend too much time debating which name is best. It is far better to just get the business registered and start trading than to delay launching simply because you cannot decide on the right name!
So, check out the tips below and choose the perfect business name for your company. We are going to take you through several steps that will come up with a broad range of company names. you can then simply choose the one you like best.
The main requirements are that your chosen company name is not already in use or too similar to an existing company name, and it should not contain any sensitive or offensive words. You must also be able to provide a UK-based address that can be used as the registered office, and you will need to appoint at least one director to run the company.
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Step 2: Appointing Directors & Allocating Shares
If you are starting the business alone then this will be a simple procedure.
Since all limited companies are required to have at least one director and one shareholder then you will be listed as both (unless you wish to appoint another company as a shareholder).
If you are starting the business with other partners then you will need to decide who will be listed as directors in the business and who will be listed as shareholders.
You can see our guide to assigning shares in a limited company if you need help with this.
The difference between directors and shareholders is that a director has a direct say in the business but not necessarily a share of the profits whereas a shareholder has a share of the profits but not necessarily a say in how the business is ran. Often the same individuals will be both directors and shareholders since it is possible to have multiple roles.
As far as shareholders go, the hardest part is usually deciding how much of the business each individual will own. If one person is investing more money than the others then naturally they will have a bigger share, however the exact levels are something you need to work out between you.
In terms of the numbers of shares issued that number can be as low as 1 share and as high as you wish! Often companies are setup with only 1 share issued to each shareholder. This works fine but it may suit you better to issue 100 shares since that can easily be divided up between shareholders (now or in the future) in to clear percentages.
The value of the shares issued should reflect the initial capital investment. Most commonly this is set at £1 per share so that a small initial investment can be made and then topped up later.
Whilst you can choose to also appoint a company secretary, this is no longer required. It’s also worth noting that the directors and shareholders do not need to be based in the UK.
Step 3: Creating The Official Documents
In addition to allocating shares, you will also need to provide a memorandum of association. This is a document, usually only one page in length, which sets out who the initial shareholders will be and confirms their intention to take shares in the company as well as confirming the name of the proposed company.
This is then attached with the articles of association which is a much more detailed document that every limited company is required to have.
It takes the form of a rulebook and binds all of the members of the company in to following the correct procedures as set out in the Companies Act.
There are templates that can be used for the memorandum and articles of association, or, if you choose to use a company formation agent, this document will be created and submitted on your behalf, without you needing to provide any extra details.
You should be aware that if you decide to make any changes to your articles of association in the future, you MUST notify Companies House.
Step 4: Completing The Application Form
Once you have decided on the name and structure for your new business you just need to complete the application form and pay the small charge.
You will of course need a few details to hand such as:
- Your desired company name
- The address of your registered office
- The number and value of shares issued
- Details of all directors and shareholders (name, address, date of birth, etc)
But overall the form is pretty simple to follow and you can either use the Companies House direct filing form, or you can use a registered agent who usually offer far simpler and user-friendly forms than Companies House and can also provide a range of extra services.
As an example, 1st Formations are a formation agent approved by Companies House and their cheapest package is only £12.99.
This includes all registration fees as well as a free domain name and email address and even a company bank account (if required). You can view our 1st Formations review for more information.
Once the form has been submitted it can take anything up to a couple of days to complete (although most are formed within a few hours). Once accepted you will receive a registration certificate that includes your registered company number and you can begin trading!
Next up, you’ll need to familiarise yourself with the various responsibilities of limited company directors…
Responsibilities Of Limited Company Directors
There can often be confusion over what the role of a director is in a limited company. Many people assume that a director must also be one of the owners of the business, however that is not necessarily the case.
Whilst it’s common practice for a director to also own a company, sometimes, directors are simply employed to oversee the smooth running of a business and have no claims to its ownership.
The ownership of a company is decided entirely on the shareholding. Only a shareholder has any legal ownership or entitlement for a business.
Whilst it’s possible to be both a director and shareholder, directors do not HAVE to be shareholders and shareholders do not HAVE to be directors.
A director’s responsibility therefore, is purely to oversee the running of the business and ensure it meets all of its legal requirements.
Often a director will also be in control of how the business operates and will have responsibility for some staff members. However, that doesn’t have to be the case, as many directors are mostly silent and allow others to run the business.
Main Areas Of Responsibility For Company Directors
There are four main areas that the directors are legally responsible for. The tasks relating to each can be delegated to other members of staff, but ultimately the director must ensure they are done. The areas are….
Complying with health and safety regulations – The director must ensure proper risk assessments are carried out and that the business complies with all current health and safety regulations. The extent of which, will depend entirely on the type of business that is operating.
Complying with all tax obligations – Company directors must ensure the business complies with and pays its various taxes including, corporation tax, VAT, and National Insurance contributions.
Complying with employment law – If the business employs staff then it will be up to the directors to ensure that all rules and regulations for employers are abided by, and that the necessary insurance is in place. Obligations can include things such as anti-discrimination laws, grievance procedures and pension schemes.
Complying with obligations to Companies House – As part of being a limited company, directors must ensure that the relevant information is passed to Companies House as and when it’s needed. This includes regular requirements such as annual returns and accounts, but also includes more irregular occurrences such as changes to shareholdings or directorships.
As long as the director is ensuring all the previously mentioned obligations are complied with, then they will be ensuring they meet their minimum legal requirements. However, it is natural that many companies will expect more from a director, such as providing support and advice to those working in the business.
Because directors have legal responsibilities, there are a few restrictions on who can be a director. For example, directors must be aged at least 16 and cannot have any undischarged bankruptcies, unless they have been given permission by the courts to act in these circumstances. You also cannot be a company director if you are currently disqualified from being one.
Other than that, anyone can be a director of a company, but they must accept they are required by law to take on the kinds of responsibilities discussed in this article.
Anti-Money Laundering Regulations
If you are in the business of providing services to other businesses then you’ll need to familiarise yourself with the anti-money laundering regulations.
These are a specific set of rules and procedures implemented to help prevent money from criminal activities being used for legitimate activities.
Whilst money-laundering is commonly associated with highly professional criminals and gangsters, it can also take the form of smaller frauds and crimes committed by otherwise law-abiding citizens.
Since business to business transactions are generally much larger by their nature, it is not unknown for criminals of all sizes to use a company to help hide and spend their illegal gains. Therefore the anti-money laundering regulations 2007 were introduced to help combat this.
If you are selling products or services to businesses, the anti-money laundering controls may effect your business.
Who Do The Anti-Money Laundering Regulations Affect?
The HMRC supervises the four following business sectors:
- Money Service Businesses
- High Value Dealers
- Trust or Company Service Providers
- Accountancy Service Providers
If you fall in to any of these sectors then you will almost certainly need to register for the money laundering regulations. In addition you’ll need implement the correct procedures to deal with it and ensure your company does not (intentionally or otherwise) aid with the movement of money gained by illegal means.
How to Comply with The Anti-Money Laundering Law
If your business activities fall under the scope of the anti-money laundering regulations then you will need to take the appropriate steps to protect yourself legally:
Register with HMRC
The first step is to register for anti-money laundering with HMRC. By doing this you will be acknowledging your legal responsibilities and committing to comply with the rules.
Registration is NOT optional – you are required by law to register if you fall under the business sectors mentioned.
Unfortunately registering for anti-money laundering regulations is not free, nor is it particularly cheap with registrations often costing several hundred pounds. As well as registering each business premises that will be used to provide the services, you may also need to register several persons in the business via the ‘fit and proper’ test which adds further costs.
Implement Due Diligence Procedures
As part of registering for anti-money laundering, you’ll also need to ensure your business implements procedures to comply with the regulations. At the basic level this means running a compliance check on each qualifying customer.
In essence this check makes sure the customer is who they say they are and is not classed as being a high risk for money laundering activities. You can usually run each check for between £2-£5 per person and there are a number of ‘AML Check’ companies who provide this service – click here to do a Google search for such businesses.
Because the anti-money laundering regulations are so important and can be complex depending on your situation, this article is only designed to be a very basic introduction to the area.
It should not be used as a substitute for legal advice and you are strongly urged to read up on the anti-money laundering regulations on the HMRC website in order to fully understand the requirements and effect on your business.
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