Every business owner should have an idea of how to set up a limited company. This is the most tax-efficient type of company and gives the owners personal liability protection in case things go wrong. This article will guide you on how to set up one in the United Kingdom.
What Is a Limited Company?
A limited corporation is a type that has its own legal identity. It is recognized as a separate entity from its owners, and the owners aren’t personally liable for debts or other claims accrued by their firm. It can be limited by guarantee or shares. There are two main types:
- Private: Closely held and controlled by a select group of shareholders.
- Public: Shares can be sold to the public on a stock exchange.
Why Set up a Limited Company
- As a shareholder, you enjoy the benefit of “limited liability.” This means you wouldn’t be personally liable for financial losses suffered by the firm or pay back debts from your personal coffers. This protection applies so far as you aren’t found guilty of illegal activity.
- The corporation has a distinct legal identity from its owners. This makes it easier to prepare taxes and looks more professional to vendors and customers.
- It is easier to raise money from investors if you incorporate it this way. It is also easier to transfer shares to another beneficiary compared to other legal structures.
When Should I Change from Sole Trader to Limited Company?
You can start as a sole trader when your business is small and in its early growth stages. However, when your business grows and boosts your income to a high tax bracket, it is advisable to switch to this structure. This move can reduce your tax burden and make it easier to raise money from outside investors to expand your firm.
Can I Set up a Limited Company on My Own?
Yes, anyone can form a limited corporation in the U.K. if they meet the requirements and pay the registration fee. However, you may need help with providing the required documentation and appointing a director. You can consult a business registration firm like Osome if you need such help.
The 4 Steps of Setting up a Limited Company
- Choose the Structure
Decide on the type of business you want to incorporate. Is it a public or a private company? Is it limited by shares or by guarantee?
- Choose the Name
Your firm must have a unique name because that is how customers will identify you. Choose a name that hasn’t been taken by anyone else; you can check company registries to confirm this. Also, adhere to these rules:
- The name must not contain vulgar words.
- It must not be similar to an established trademark
- It must suggest a connection with the government or local authorities unless you get due permission.
- Pick Directors and Shareholders
You must appoint a UK-based director that will bear responsibilities, including keeping accurate records and filing financial accounts. You must also choose the shareholders that will own the firm.
- Documentation
With the above steps settled, it is time to file and submit the required documents. You must provide details, including:
- A physical office address where you can receive mail on business-related matters.
- Type of business operation.
- The number of shareholders you have and the division of shares between them.
- Memorandum of Association: A binding document signed by all shareholders that acknowledge their intent to form a corporation.
- Articles of Association: A document that outlines the rules the corporation will be governed by.
- Valid identification for all shareholders and directors.
How to Register a Limited Company
As a final step, you will need to fill out a Form IN01 and pay between £20 and £40 as a registration fee depending on your company type. The form demands the details we listed in the ‘documentation’ section above. Once your application is approved, you will receive a Certificate of Incorporation acknowledging that your newly formed business is now recognized by the government.
Conclusion
We have outlined the steps involved in setting up a limited corporate entity in the U.K. This is the most tax-efficient structure and gives personal liability protection, so it is something you should consider as a businessperson. If you need help in any step, Osome is available to provide it. For example, we can provide a U.K.-based director to nominate or an office address where you can receive mail.
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