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Startup Guides Jun 3, 2020 6 min read

Complete Guide: How to set up a limited company

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Rob Winspear

This article will explain every step you need to consider when you are setting up your company for the first time.

This guide should be read in conjunction with using the gov.uk online portal to register your company. A link to that portal can be found here (and is reproduced below): https://www.tax.service.gov.uk/register-your-company/setting-up-new-limited-company

Choose your company name

Your registered name must include “limited” or “ltd” (unless you register as a charity or are limited by guarantee). Think carefully about which prefix you prefer because you must not use “limited” and “ltd” interchangeably once your company is incorporated. (e.g. if you choose “company limited” but try and file something under the name “company ltd” that filing will be rejected.

Your name cannot be the same as another registered company’s name. If your name is too similar to another company name or trademark then you may have to change it if someone makes a complaint and that can prove costly, particularly if you have to restart your branding exercise again. Even a simple Google search can be helpful here to make sure there is no-one else out there using your preferred name whether they have registered it or not. More guidance can be found here: https://www.gov.uk/government/publications/incorporation-and-names

Your proposed name cannot be offensive. Neither can it contain a ‘sensitive’ word or expression, or suggest a connection with the government unless you get permission. You can check whether your proposed name is eligible using the Companies House search tool: https://beta.companieshouse.gov.uk/company-name-availability

Once you have chosen a company name you are entitled to trade using a different name to your registered name. This is known as a ‘business name’ and will appear at Companies House following “t/a” which stands for “trading as”. Your trading name must follow the same rules as your company name. Your trading name cannot include the words “ltd” or “limited”.

Choose your director(s)

You must appoint at least one person as director of the company. Most people are eligible to become a director. All you need to be is older than 16 and not previously disqualified from being a director.

Directors do not have to live in the UK but must have a UK registered office address. If you are becoming a director your name and service address will appear on the Companies House public register so bear that in mind. If you object to having your home address on a public register you can apply to Companies House to have it removed.

Becoming a director is a substantial commitment. Once appointed, a director becomes subject to directors’ duties enshrined in the Companies Act which if breached can lead to personal legal liability.

You do not need more than one director if you adopt the model articles of association (which 99% of companies do when they incorporate). Neither do you have to appoint a company secretary.

However, if you are starting a business with a team, it would be advisable to appoint two directors to improve company decision making.

You are required to keep a register of all directors at your registered office address. That register must contain the director’s full name, any former names, a service address, date of birth, country they are usually resident, their nationality, business occupation (which can be ‘none’) and the date they became a director.

Choose your shareholder(s) and share structure

You also need at least one shareholder. If you are setting up shop as a one man band, you can appoint yourself as the director and be the sole shareholder in your company.

You want to set your company up so that it is ‘limited by shares’ as opposed to ‘limited by guarantee’ as being limited by shares means the company is owned by the shareholders, who are given voting rights which attach to the shares they own and means that the personal liability of the shareholders will only equal the value of the shares they own (e.g. almost no liability).

You should create ‘ordinary’ shares which give each shareholder one vote per share, and a right to receive dividend payments in the future.

We recommend incorporating with 1000 ordinary shares each with a nominal value of £0.01, so that your entire share capital equals £10. This will give you enough wriggle room if you decide to transfer some shares to other individuals or wish to issue more shares to investors.

When you incorporate your company you need to provide a “statement of capital” which explains the number of shares the company has and their total value, as well as the names and addresses of all shareholders. You will also need to describe what rights each type of share (share classes) gives the shareholder. You can use our wording to describe the ordinary shares you are creating as follows:

“The Ordinary Shares have attached to them full voting rights and full dividend rights. They do not confer any rights of redemption. They have capital distribution rights limited to pro rata rights in proportion to the total number of ordinary shares (on an as converted basis for preference shares).”

You are required to keep a register of all of your shareholders at your company’s registered office. 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.

Identify your persons of significant control

You are required by law to keep a register of anyone who is considered to be a ‘person of significant control’ at your registered office, and file that PSC information at Companies House. This register must be available for inspection, failure to provide it results in a criminal offence.

For the purposes of incorporation, a person of significant control is some who holds more than 25% of the shares in the company.

You also need to register anyone who holds more than 25% of the voting rights in the company, but given you will be incorporating with ordinary shares the voting and ownership percentage will remain equal as and until you decide to issue ‘non-voting’ shares, but you will not have a need to do this until later.

For each person of significant control you will need their name, date of birth, nationality, country where they usually live in, service address, the date they became a person of significant control. If you use the government portal the application process will complete this step for you but do not forget to keep an additional register of these individuals at your registered office.

Create your articles of association

If you register your company online using the Companies House portal you will be provided with a ‘memorandum of association’ which is a legally required document showing that the initial shareholders of the company agreed to form the company.

You will also be provided with what are called the ‘model articles of association’. These are the constitutional rules of your company which set out how decisions are made in the company. The model articles will be sufficient until you have spent some time growing your company.

You can also elect to adopt your own custom articles if you have them already prepared. Unless they have been prepared professionally you should adopt the model articles of association.

Choose your registered address

You must provide a registered office address. This is where official communication will be sent such as letters from Companies House, and where people can expect to find your statutory registers.

The address must be a physical address in the UK (and must be in the country your company is registered e.g. English address for an English company). You cannot remove this address from Companies House so if you do not wish to use your residential address you should consider finding a suitable alternative address before incorporation.

Choose your SIC code

Your Standard Industrial Classification (“SIC”) code is used to identify what kind of economic activity your new company is going to undertake. The Office of National Statistics uses these codes to collate data about the types of business taking place in the UK. SIC codes are not the easiest as more often than not, your business won’t fit neatly into just one category. Try and match with the nearest.
You can search for the most appropriate SIC code for your new business here: http://resources.companieshouse.gov.uk/sic/

Register at Companies House and register for corporation tax

We recommend using the gov.uk portal for registering your company at Companies House as this will also allow you to register for corporation tax at the same time.

In addition to the information you need for your founding shareholders that was described above, you will also need their national insurance number and their passport numbers.

The process costs £12 and can be paid by debit card.

The link to the portal is here:

https://www.tax.service.gov.uk/register-your-company/setting-up-new-limited-company

If you do not use this portal remember that you will need to register for corporation tax within 3 months of starting to do business.

Set up payroll

The benefit of using the portal linked above is that you can also 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 administer 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.

Set up team agreements

For your own employment agreement with the company and for any other staff that you are looking to hire, you can use SeedLegals to create all of the team agreements that you need. You can sign up here for free.

Set up your shareholders’ agreement (non-venture)

If you are not a company that is looking to raise money from investors you may wish to create a shareholders’ agreement between the founding shareholders. This would be a private legal agreement between those individuals that does not need to appear at Companies House which can set out additional rules about how the company is run.
SeedLegals has such an agreement in our product pipeline so stay tuned for when support for this private agreement is announced.

Registering trademarks?

It is a misconception that registering trademarks is important to do when setting up your company. Doing so can be expensive, time consuming and easy to get wrong.

Plus, there is little reason to own a trademark from day one, because at that point it is highly unlikely anybody else in the world will wish to copy what you are doing!

Accounting

You are also required to keep a record of all of your company expenditure and earnings. You should think about hiring a company accountant or using personal accounting software.

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