How to form a limited company

Many businesses are making the change from being a sole trader to limited company to take advantage of the limited liability and also the opportunity for tax planning.

(Click here for the “How to save tax and National Insurance” article).

Suppliers and customers often prefer to deal with a limited company as it can imply stability, longevity and also the company’s accounts and details of directors are in the public domain. This makes it easier for credit reference agencies and debt insurance providers to recommend credit limits. Unfortunately your competitors can find out about your company’s performance, ownership and mortgages etc at Companies House from only £1!

The main difference you will find upon incorporating the business is that you are now an employee of the company. As a result, instead of drawing a “wage” whenever you wanted to, you will now be paid a salary which will be taxable under PAYE, the company will need to pay Company National Insurance on your salary and any money withdrawn in excess of this will be treated as a loan to you and may be taxable as a benefit in kind. I will cover ways to extract profits from your company in a separate article.

Choosing a name

Under company law you cannot have the same or closely similar name to an existing company. It is easy to check whether your ideal name is already taken, just visit the Companies House website and use the webcheck facility to search for the name.

How much does it cost?

New limited companies can be set up in a few hours online, it is relatively straight forward provided you have the necessary information to hand and have considered how you want to arrange the shareholding. Up until April 2008 a limited company had to have a director and a company secretary ie two different people. The legal requirement for a company secretary was removed by The Companies Act 2006 effective April 2008 for most small companies and the responsibilities for dealing with Companies House now lies with the company’s directors. The company secretary, where chosen, is often a spouse, family member or accountant.

At HRBS we offer a company secretarial service which includes dealing with Companies House forms, maintaining the share registers and dealing with dividend documantation (vouchers and directors meeting minutes etc). You must have the company secretary’s permission as this role has its own legal responsibilites and they must provide personal information when the company is formed.

Depending on which package you choose, a company can be set up for about £35.00 , we offer a company formation service for £85 which includes the limited company and dealing with the registration with Companies House and HMRC on your behalf, or you could do it yourself using an online service such as simpleformations.com , our preferred formation agent.

When you form your limited company you will need to decide upon how many shares are issued and who receives them. Remember that shares represent part ownership of the company, so think carefully about who you give them to. At HRBS, for new small companies, we recommend forming the company with £1000 of shares but only issue/subscribe for £100 as this capital has to be paid into the company and stays in the company until it is sold or the company buys back its shares.

What information do I need?

Proposed company name:
Full name of director:
Director’s date of birth:
Director’s Passport Number:
Director’s town of birth:
Director’s Full Home address:
Details of any other companies of which you are/have been a director:

Share capital required (most companies start with £2 or £100):

Initial shareholders: name and address
Initial shareholdings: number of shares

Full name of company secretary:
Date of birth of company secretary:
Passport Number:

Registered Office (home address is OK)

For ID protection Companies House require 3 of the following for
director, company secretary and initial shareholders:

Town of Birth:
Last three digits of home phone number:
Last three characters of NI number:
Last three digits of passport number:
Mothers maiden name:
Fathers first name:
Eye colour:

Your company formation documents can be emailed to you within a few hours (Monday to Friday) or a few days if you have ordered a hard copy.

Ok I have formed the company … what next?

You will need a bank account and in most cases register a PAYE scheme and register for VAT or transfer your VAT registration from your sole trader to the new limited company. You will also need to inform HMRC and the Contributions Agency that you have ceased trading a sole trader so that your class 2 NIC contributions cease. I will cover these in separate articles.

Need help?

At HRBS we provide a full range of accounting, taxation and VAT services including company formation, all at reasonable fixed fees, why not contact us for a quote?

Taxcafe have some great, plain English guides to the potential tax benefits of using a limited company.

	Using A Company To Save Tax Contains all the information you will ever need on the tax benefits and drawbacks of running your business through a limited company. Click here for more details.
	Salary versus Dividends An essential guide for company directors and shareholders, this guide shows how to potentially save thousands by choosing the right mix of salary, bonus and dividends. Click here for more details.

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