Are you interested in How To Set Up A Limited Company in the Uk? It has come to our notice that a lot of people are searching for ways to start up businesses of their own in the United Kingdom. Starting any business could have some challenges and it could even be more when it is a limited liability company.
How to Set up a Limited Company in the Uk
The step-by-step process will be given right here for your consumption and you will surely get the best lessons from it.
Questions and information to be expected from this article include;
- What is a limited company?
- Why set up a limited company?
- When should anyone change from sole trader to limited company?
- Can I set up a limited company on my own?
- The steps required to start up a limited liability company
- How to register such a company
You will also get the answers to so many questions that you may have asked before reading this article.
Now that we know what we stand to gain, let‘s move further.
What is a Limited Company?
What better way to start than to get into the very root of the subject of discussion?
A limited company is a business entity that is a separate legal and financial entity from its founders or the people running it. I like to call it a self-sufficient business. The main advantage of this business is that if your business goes through a downtime of failure or is sued, you will only be liable for the face value of your share in the business. Apart from that, your assets are protected.
A limited Liability company as it is popularly called has one or more directors, has its bank accounts, pays its kind of tax, and can be bought or sold in form of shares. This means that the concept of the sole owner does not exist here.
Why Set Up A Limited Liability Company?
Setting up a limited liability company offers great advantages. This is described by the term“limited liability“. The advantage here is that other people are incorporated into ownership. Therefore, risk sharing is made possible.
In a sole proprietorship, only one person bears the risk of a full business. If the business is in ruins, the sole owner or proprietor pays for it with his/her finances. In the case of a limited liability company, everyone has responsibility for their share of the business. That way, when the business gets into difficult times, your assets are protected and everyone shares the risk.
Steps to Start up a Limited Liability Company
Now that we know what a limited liability Company (LLC) is, let‘s discuss the major steps every business enthusiast or person is required to take to start up a Limited Liability Company;
Be Very Sure that you are Taking the Right Step
It is very understandable to start because you do not want to be left behind. But you have to understand that everything is not for you. before starting up a Limited liability company, study the business structure and make sure it is very suitable for your type of business.
Get A Name for Your Company
This stage is very crucial. Your brand name is the loudest part of your brand identity. Make sure you have an available name ( a name that has not been used by any other brand in the world ). Choose a name that is not offensive and that does not make any false implications. Your brand name must be unique and affiliated to you alone.
Appoint A director
Your company needs at least one director. The roles of directors are to collectively make decisions for the company, file accounts, and make sure that the company pays all its corporate taxes.
It is also necessary to appoint a company secretary to ensure that the company‘s decisions are carried out, handle the administration of the company and make sure the required regulations and rules are followed.
Decide Who the Shareholders Will be
This is the major step. The share can be divided amongst the directors, not necessarily even. Major decisions are taken by the votes of the shareholders at shareholders‘ meetings. The amount of votes a shareholder commands depends on the number of shares he or she has. Hence, shareholders will have majority shares have more influence. Any shareholder having 25 percent of the shares in the company becomes a PSC ( person of significant control ).
Create The Documents of your Company
A set of documents recognizing your company‘s formation and how it is to be run must be set up. These documents include;
- The Company‘s Articles of Association: A set of rules on how your company is to be run agreed or decided by the shareholders of your company and other significant office holders.
- Memorandum of association: A legal statement that is signed by all initial shareholders stating that they all agreed to form the company together.
Confirm all the Records that you Need to Keep
You have to keep significant records of the company. These records include the following,
- PSCs ( person of significant control ).
- The Accounting records of the company
All these records must be kept for at least 6 years.
Register With the Companies House
The last but most important step here is to register your company and its official address at the company‘s house. You will have to select the correct SIC code because it specifies the nature of your business. You can also include tax registrations at the same time.
How to Register A Limited Company
The registration of your company can be done online with Companies House or by post. If you do not want to use limited on your company‘s name, you must use post. when you apply, your company will be registered within the next 24 hours if it is done online. The post method usually takes up to 10 working days.
Immediately after you register your company, you will receive a 10 digits Unique taxpayer reference (UTR). This will be posted to your company‘s address within a few days. You have to keep this code very safe. A Certificate of incorporation will also be given to you, confirming that the company legally exists. This certificate will also contain the company number and the date of formation of the company.
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Legal Responsibilities Of Running A Company
There are some legal responsibilities that you have as the director of the company. These responsibilities include managing accounts, forming other shareholders, and appointing an accountant and a company secretary.
At the end of the year, you must report the key information of your financial year to the HMRC ( Her Majesty’s Revenue and Customs ) and companies. This is to ensure that the company pays all the tax it owes and also provides accurate information about the company to its shareholder, investors, creditors, and the general public.
Don‘t do this alone, consult a business expert to guide you.
Frequently Asked Questions on How To Set Up A Limited Company in the Uk
When should One change from sole trader to limited company?
A sole proprietorship is a very good way to test your business model, know what works, and refine it. It doesn‘t require any registration fees and very little admin, and all decisions are made by you without having to consult other directors or shareholders.
In this case, you pay income tax on your profits rather than corporation tax, and you are also personally liable for the debts of the business. This means that as your income increases, it can make more sense to form a private limited company.
Can I set up a limited company on my own?
Of course, you can, but this will make you the sole employee and the only director. This is practiced by most contractors because they do not want their clients to treat them as employees for tax and legal purposes. This also protects contractors from heavy personal losses if they ever get sued by clients.
What taxes will my company pay?
The taxes that you must pay includes corporation tax on its profits. immediately after your company is registered with Companies House, you must register it for corporation tax within three months of it becoming active). Being active means that your business is providing services and getting paid. Late registration of corporation tax will attract a fine.
How long does it take to set up a limited company?
Limited liability companies in the United Kingdom do not take a long time to get set up. The highest time it may take is 10 days.
How will I get paid through my limited company?
You can get paid in two different ways as the director of your company. You can get a fixed salary and also pay yourself for the profits of the company. You can even do the combination of both as this could be tax efficient.
Dividends have tax due on them and you can only pay them as profits. Salaries entitle you to various benefits like state pension, maternity, or paternity benefits.
Do I Need To Create An Operating Agreement For My LLC?
This is not compulsory for all states but can be very handy. People having business partners should consider creating an operating agreement to ensure everyone agrees. For single-member LLCs, it’s very important to have written guidelines for running the business.
What Is An Article Of Organization?
This document is known differently in different states, with phrases like a certificate of formation or certificate of organization. An article or organization is a document that is specific to LLCs that outlines the initial statements necessary for forming an LLC in most U.S. states.
This document must be filed with your state’s Secretary of State, and it must have essential information like your business name and address, the purpose of your business, how the business will be managed, contact information for the LLC’s registered agent and, if known, the expected time duration of the LLC.
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