Setting up a limited company is not as difficult as you may think. However, it is equally important to follow the right steps and procedures to avoid any inconveniences later while you are contracting.
For contractors, contracting using a Limited Company has always been the most tax efficient way to trade. This limited company guide covers all the top tips and will help you quickly setup your own limited company in a few simple steps.
Without further ado, let's begin with the guide.
What would you need to setup a limited company?
A Limited Company has an identity of its own in the eyes of law. It is treated just like an individual, it has a name under which it operates, generates revenue, pays taxes etc. and to setup a Limited Company, you’ll need:
Choose an unique name for your limited company
First and foremost, you will need to choose a unique name for your Limited Company. A name which is relevant to what you are doing and most importantly, it shouldn’t have been used or registered by someone else.
A limited company name will always end with ‘Ltd’, for example XYZ Developers Ltd.
Remember, Companies House maintains a list of all the UK registered Limited Companies. Visit Companies House to find out if the company name you are looking for is available or not.
Registered Office Address / Company Trading Address
Once you have figured out the name, you will need a company address in the UK. You’ll need a registered office / trading address for your business. This is the address HMRC and your clients will use to communicate with you. This is also the address which you would be using when you raise an invoice to your client or while setting up a business bank account.
Appointing Directors, Company Secretary and deciding on shareholders
Once you have decided on the company name and address, you’ll need to figure out who all will be a part of this Limited Company. You’ll have to appoint a Company Director and a Company Secretary.
Many a times, a Secretary’s role is played by the Company Director. This often happens in one man limited companies. In other scenarios, Director often appoints his/her Spouse or Partner as the Company Secretary.
Once you have finalised on Director(s) and Company Secretary, you’ll have to figure out the shareholding pattern and issue shares.
You’ll need to decide, who’ll own the major stake in the limited company? How will the shareholding be split, will it be 50-50 or 70-30 percent? What type of shares you’ll be issuing, i.e. ordinary shares or preference shares etc.
Issuing shares is a critical part of the Limited Company formation, and it should be done with utmost care and after a lot of due diligence.
Different types of shares can be issued, and the type of share you issue, will have tax implications. It is always advised to seek professional help (i.e. of a Contractor Accountant) before making any decision regarding share issuance, capital, split and other related things.
Memorandum and Articles of Association (MOA)
Next comes Memorandum of Association (also popularly known as MOA). This is one of the most important legal document of a company. This legal document is for everyone concerned with your business, and is publicly available for everyone to see and read.
Memorandum of Association tells everyone concerned as to why the business was setup, what type of business the company will be doing, scope of business and its objectives.
This document needs to be clearly defined as this document can come in handy if you land into legal trouble, especially if you are wrongly caught inside IR35. You are not permitted by the law to conduct business outside the scope of business defined in the Memorandum of Association.
Take professional help if you aren’t sure of how to write a MOA. A contractor accountant can easily help you do this. Template for memorandum of association for limited companies is available here.
Business Bank Account
Once you have completed all this, you will need a Business Bank Account for your limited company. This is the bank account where your clients will pay you. Nowadays, it’s pretty easy to setup a bank account for a limited company, and can be done online with ease.
Last but not the least, your business would need to be VAT registered. You can do this online by visiting HMRC website. Again, according to us, a contractor accountant is the best person to deal with VAT registration, as choosing the right VAT route is absolutely critical. This will also have an impact on how much money you take home.
We have seen many cases where contractors didn’t appoint a contractor accountant, and instead chose to do it on their own. By no means, we want to demotivate you or stop you from doing it yourself. But, we strongly recommend hiring a contractor accountant, rather than taking the risk of doing it on your own. Let experts handle it, it’ll all be worth it at the end of the day!
Click here if you want to setup your limited company online, or email us on [email protected] if you need any professional help in setting up your limited company. Alternatively, you can also visit our Contractor Accountants directory and contact any of our trusted and verified contractor accountants, and they’ll be more than happy to help you.
You can fill in the Request a Call Back form on this page or simply write to us at [email protected] and we will be more than happy to help.