Ready to start a Limited Company?

One of the greatest achievements in my career is creating my own Limited Company. This truly feels like the pinnacle of all my hard work in accounting and finance. I have worked and studied over the last near 20 years just to start my own accountancy company and provide accounting and tax services to a range of clients working in various industries. A lot of young entrepreneurs with different backgrounds also follow a similar journey to my own. They may start off as a sole trader but eventually decide that they want to start a new Limited Company. But why should they start a Limited Company and what is required in the formation?

Well there are a few reasons as to why you would want to start a new Limited Company. The first is that a Limited Company is a separate legal entity from the owner or shareholder. Therefore, there will be limited liability which means the owner's assets are not at risk from unpaid debts. Due to this distinction, the business will continue to exist even if the original owners leave the business. There are also tax advantages as many business owners can opt for a lower salary and draw out dividends which carry a lower tax charge. There are also plenty of finance options to grow and expand the business such as issuing shares. And of course, having your own Limited Company has much more prestige and will appear more established and stable to your clients.

Of course starting a new Limited Company comes with a few hurdles. There will be more legal and financial requirements from the owner. The accounts for the Limited Company will need to be submitted to the Companies House on a yearly basis. The same goes for Corporation Tax which will need to be submitted and paid to HMRC also on a yearly basis. The accounts will also be made public through Companies House therefore there will be limited financial privacy. There will also be more running costs of the business such as accountant fees, Companies House fees, and potential for higher bank charges. You will also need to submit a confirmation statement on a yearly basis confirming that all company details are correct.  If you also decide to close the company, this could be a complex and potentially costly process. Directors must ensure all debts and taxes are settled and legal responsibilities met and this may involve hiring an Insolvency Practitioner. 

There are both pros and cons of starting a Limited Company, but you should decide for yourself or hire an accountant to determine what the best course of action should be for your growing business. A lot of sole traders tend to transition to a Limited Company once their profits exceed £50,000 due to getting pushed to the higher tax bracket. 

So, if you do decide to go ahead with creating a Limited Company, what are the requirements? Firstly, you will need to pick a name which is unique and hasn't been used by any other company. You then need to confirm your Registered Office address. This could be your home address or an actual office address which of course depends on where you carry out your business. A Standard Industrial Classification (SIC) code will then need to be confirmed. This is a 5-digit code which confirms the industry sector your business is in. 

Director and Shareholder details will also be needed. You will need to confirm how many directors/shareholders will be part of the business. You will need to confirm the shareholding quantity and share value. A good starting point for a single director would be 100 £1 shares. Anything above that would be pointless and potentially dangerous as you will effectively be creating a loan to your company. If you potentially go into liquidation at some point, the liquidator could say that the shareholder still owes money for the shares.

The directors will also need to confirm their identity to Companies House by submitting their passport or driving license. This process is known as the Personal with Significant Control (PSC)/Director Personal Verification Code. You can perform this step yourself on the GOV.UK website or you could ask your accountant to do this as an agent but be aware this might came at an extra charge. You will also need to provide your full name, date of birth, residential address, company email address, service address and nationality. You will also need to ensure that your company registers for corporation tax within 3 months of starting business. You should be given an option to opt for automatic registration when forming the company or check with your accountant.

Once formed you will receive the documents from the Companies House which includes a Certificate of Incorporation stating your 8-digit company number along with your company name. You will also get a Memorandum of Association confirming the shareholder's intent to form the company and become members. Articles of Association will also be provided stating rules on how the company must be run. And finally share certificates will also be issued. These documents are very important and can also be used when forming a business bank account. It is recommended to form the bank account once the Company formation has been complete and all documents received.

If you would like any assistance to kick start your new Limited Company, call Paradox Accountancy Limited today on 07543 750 467.