Setting up as a limited company is one of the smartest and most tax-efficient ways to get paid for your work.
Steps to set up a limited company:
- Choose the type of limited company for you
Once you’ve decided to set up a limited company, you have to choose which type you wish to form. The two main choices are:
-
- Private Limited Companies (LTDs)
- Public Limited Companies (PLCs)
Most freelancers, contractors, start-ups and small businesses will opt for a Private Limited Company, as PLCs must have a minimum share capital of £50,000, at least two shareholders, two directors and a qualified company secretary.
There’s no minimum share capital requirement for LTDs. You can set up a LTD with a single share worth £1 if you wish.
- Pick a name for your limited company
This bit is equally fun and frustrating part of the whole process for most new limited companies. Your limited company name cannot be the same as another registered company’s name. If your name is too similar to another company’s name or trade mark you may have to change it if someone makes a complaint.
Your name must usually end in either ‘Limited’ or ‘Ltd’. You can include the Welsh equivalents ‘Cyfyngedig’ and ‘Cyf’ instead if you registered the company in Wales.
- Forming a limited company
In this section you have to supply certain personal details to help Companies House identify you as a company director. These include:
-
- Letting them know what type of business your limited company will carry out by submitting a SIC code (Standard Industrial Classification code) for your business. You can select the most appropriate code from the Condensed SIC code list online at Gov.uk which is maintained by Companies House.
-
- Decide what addresses you want to register for your business. You’ll need to choose your Registered Office Address, and provide a service address.
-
- Decide on the ownership of your company – how many shareholders do you want and how many shares will they have each (known as their shareholding)?
Once you’ve done this, you’re good to go. Companies House will often have your limited company formed in a few hours.
- Finally the incorporation process
Companies House is responsible for all limited company registration in the UK. Their website provides detailed information on how to go about the process, or you can use a service like our Crunch Formations to simplify things.
The following documents must be completed and returned to Companies House in order to complete the incorporation process. Often, your company formation agent or accountant will complete these on your behalf:
-
- Memorandum of Association – limited company name, location, business type
- Form 10 – director’s names, addresses and registered limited company address (this doesn’t have to be where you work from but will be where the legal correspondence from HMRC and Companies House is sent)
- Form 12 – states the limited company complies with the terms and conditions of the Companies Act
- Articles of Association – outlines director’s powers, shareholder rights etc. (this is often provided by the formations company that sets up the limited company).
And that’s how to become a limited company! What do you need to do next?
Well, there are a couple more bits of admin you should take care of and there are those pesky reporting and filing responsibilities you need to stay on top of.
