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As you gear up for growth, setting up as a limited company is one of the most important steps you’ll take. A limited company setup allows you to issue shares to investors, protect your personal assets, and often pay a lower rate of tax on profits than you would as a sole trader.
The process of setting up a new limited company isn’t complicated, but there are several stages involved. So to help guide you, here’s our step-by-step guide to limited company formation.
There are various legal structures available to UK companies. If your aim is to get investment, turn a profit and eventually sell the company on, you’ll want to incorporate as a company limited by shares (as opposed to limited by guarantee, which is mainly used by non-profits).
As a private company limited by shares your company:
When you set up as a limited company, your business becomes a legally separate entity from you, the founder. That means its finances (including revenue, property, debts etc) are no longer tied to your own personal finances and your personal assets are protected if the business fails.
There are benefits to this legal separation, such as:
Legal liability – your financial exposure to the company is limited to what you put into it.
Tax – a limited company pays Corporation Tax on profits through the business, and you can pay yourself a salary and dividends. In general, it’s more tax-efficient than operating as a sole trader.
Investment – as a limited company you can issue shares and raise investment.
It only costs £12 to register a limited company online using a credit or debit card.
If you want to register by post, it costs £20 and you’ll need to complete the IN01 form.
The name you choose for your limited company must follow certain rules.
It has to end with either Limited or ltd
Think carefully about which one you want, because you won’t be able to use them interchangeably after your company is incorporated. So, for example, if you register as Company Limited, you can’t file under Company ltd.
It has to be unique
Your name can’t be the same as or too similar to another registered company’s name. If it’s too similar to another company name or trademark and they make a complaint, you might have to change it. That can prove costly, particularly if you have to restart your branding exercise again.
Make sure you do some research before settling on a name. A simple Google search is a good place to start and you can also use the Companies House name availability checker.
It can’t contain sensitive words and expressions
Your proposed name can’t be offensive or suggest a connection with the government unless you get permission.
You can trade under a different name
You can trade under a different name to the one you’ve registered with Companies House. This is called a business or trading name and will be listed at Companies House after the letters ‘t/a’ (trading as). Your business name must follow the same rules as your company name, but it can’t include Limited or ltd.
To read the full requirements for naming your company, see the Companies House incorporation and names guidance.
Your company needs to have at least one director – and you can appoint yourself for the sake of simplicity. Directors are responsible for company decisions and making sure that the business is meeting all legal requirements.
Becoming a company director is a substantial commitment. A director is subject to the directors’ duties enshrined in the Companies Act. If a director breaches these duties, it can lead to personal legal liability.
Almost anyone can be a company director. All you need to be is older than 16 and not previously disqualified from being a director.
You don’t need more than one director if you adopt the model articles of association, which 99% of companies do when they incorporate. But, if you’re starting a business with a team, it’s sensible to appoint two directors to improve company decision making.
Directors do not have to live in the UK but must have a UK registered office address. As a director, your name and service address will appear on the Companies House public register. If you object to having your home address on a public register you can apply to Companies House to have it removed.
You also need at least one shareholder, which can simply be yourself. You can appoint yourself as the director and be the sole shareholder in your company.
To keep it simple as you start out, we recommend incorporating with 100 ordinary shares, each with a nominal value of £0.01, so that your entire share capital equals £1.
Then, before your first funding round, you can do a share split to turn those 100 shares into 1,000. Say you had an investor who wanted 5% equity. You can allocate 5,263 new shares to them so they have 5,263 out of 105,263 shares. This would be instead of having to allocate them 5 shares out of 105 which would actually come to 4.76%.
Co-Founder & CEO,
When you incorporate your company you need to provide a statement of capital which sets out:
You need to keep a register of all of your shareholders. This register must contain each shareholder’s full name, contact address, number and class of share, amount paid on each share and the date they became a shareholder.
As your company grows, keeping that information up-to-date becomes more of a task. That’s why it’s helpful to have an auto-updating cap table that keeps track for you. At SeedLegals, your cap table is integrated with your legals, so whenever your shareholdings change, your cap table automatically changes too.
While an automated cap table is essential as a source of truth, you’ll still need to keep an official shareholder register separate from your cap table. To find out exactly how to do that, see our guide on how to create a shareholder register.
If someone holds more than 25% of the shares in your company, they are considered a person with significant control (PSC).
You’ll need to submit the following details about PSCs to Companies House:
If you register your company online, you’ll complete this as part of the application process.
When you register online on Companies House, two documents are automatically created for you, a Memorandum of Association and the Articles of Association. Together, these essentially act as a formal acknowledgement of how your company will operate.
Memorandum of Association
This is a legal statement between the founding shareholders, agreeing to form the company. If you register your company online, it’s automatically created for you.
Articles of Association
These are the constitutional rules of your company which explain how decisions are made in the company. Most companies in their early stages use the Model Articles of Association instead of preparing their own custom articles.
You can also choose to adopt your own custom articles if you have them already prepared – but at this stage, it’s usually not necessary. If you do a funding round with SeedLegals later down the line, we’ll create new Articles for you that better reflect your needs at the time.
You must provide a registered office address. This is where official communication will go, including letters from Companies House.
The address has to be a physical address in the UK, and has to be in the country your company is registered, e.g. an address in England for an English company.
You can’t remove this address from Companies House, so if you don’t want to make your residential address public, for example, you should consider finding a suitable alternative address before incorporation.
Your Standard Industrial Classification (SIC) code identifies what kind of business your new company is. The Office of National Statistics uses these codes to collate data about the types of business taking place in the UK.
It’s not worth agonising over finding the perfect SIC code. They seem to have been developed in Victorian times, with more codes for milling machines than anything internet-related. In any case, the code won’t affect your company, so just choose one that’s close-enough to what you do.
It’s quick to register your company with Companies House when you’ve got all the information you need. You’ll automatically be registered for Corporation Tax at the same time and receive your Unique Taxpayer Reference (UTR) number.
You’ll need to supply at least three pieces of personal information about yourself and your founding shareholders. This could be:
It costs £12 to register a limited company and you can pay by debit or credit card. It usually only takes 24 hours for your registration to be complete.
When registered, you’ll get a certificate of incorporation, as confirmation that your company legally exists. It shows your company number and the date of formation.
You can use the same application to register for PAYE to tell HMRC you’re employing staff (including yourself if you’re the only director).
PAYE is probably the easiest way to manage paying your staff and making sure the right tax is being taken from their salary and the right tax is being paid by your company.
After you’ve registered your limited company, there are a few other important admin pieces to get your company set up correctly and ready to grow.
Start a business bank account
Since your limited company is a separate legal entity, it needs a dedicated bank account. It’s a legal requirement to separate your business finances from your personal finances. When choosing a business bank account, pay attention to account fees, whether you can earn interest, transaction limits and any perks you might get that could help your business.
As a SeedLegals member, you get £75 and a year of free bank transfers when you set up a business current account with Tide.
Create founder agreements
On SeedLegals, it’s simple to create founder agreements between the founding members. These are legal agreements between you and your founding team that you don’t need to submit to Companies House. They set out the founders’ responsibilities towards the company.
Sign team agreements
For your own employment agreement with the company and for any other staff that you’re looking to hire, you can use SeedLegals to create all of the team agreements that you need.
Manage your cap table
The cap table shows who owns equity in your company and how much each person owns. You’ll need one when you have multiple shareholders and you’re planning to speak to potential investors.
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