Forming a limited company
Forming a limited company is a lot easier than you would think! Here’s our six step process to forming a limited company.
Starting up a limited company can bring all sorts of benefits to your freelancing or contracting business, from providing you with the protection of limited liability, tax benefits and by giving your company credibility and a professional impression.
Step 1: choose your method
There are three main routes to company formation: doing it yourself, using an accountant, or using a formation agent.
You can create your company yourself by following instructions on the Companies House website, but please remember that some of the legally required documents you’ll need such as share certificates, minutes of your first board meeting and your combined registers will not be included if you choose this route.
Accountants can help you set up your limited company, so if you already have a good relationship with your accountant this might be the route for you. However, accountants’ fees can be prohibitive, so this might not be the best option if you are looking for a quick, cost-effective formation.
The most popular method of forming a company is using a formation agent. There are plenty of companies who specialise in getting your company formed quickly, many operate online and they often have useful tools like a company name checker. Formation agents typically offer a full range of services, from a very basic form-filling service, to a complete package including a range of optional extras. Shop around for a deal that works for your needs and budget. Make sure that you get all the required legal documentation as many of the cheaper options don’t include these items in their standard packages.
A good accountant and formation agent will advise and help you to complete all your documents. They will also ensure that you meet your legal annual filing responsibilities and recommend other services you might want or need for your business such as banking, domain registration and business insurance.
However you decide to form your limited company, it must be registered with Companies House, and to create your company you will need to take the following steps.
Step 2: naming your company
When you’re choosing a company name, you are also deciding on a corporate identity for your business.
Many contractors and freelancers choose to base their company name on their own individual name, which is particularly useful if you are already in business and becoming known for your work. Keeping the company name in line with your own will help new and old clients recognise you easily.
If you are just starting or are looking to expand quickly, it might be more useful to have a descriptive term within your company name. By describing what you do it will make it simple for clients to understand the service you provide.
Of course, companies with random, completely non-descriptive names often become the most recognisable (such as Google), but remember it took a long time and an impressive budget to get those companies brand recognition, so if you choose this option be prepared to spell your company name out to people for a good few years!
There are restrictions regarding company names, for example, you can’t use a name too similar to another company or one that intrudes on an established brand. Other than that – be creative! This is your business, so feel free to choose something that reflects your style and way of working. Once you have a name, it’s worth checking it directly with companies house or a formation agent before you register, and make sure not to order any domains or stationery before the name has been confirmed as registered – just in case there’s a problem.
Step 3: sorting out shares
If you plan to own and run your contracting or freelancing business alone, sorting out your shares will be surprisingly easy!
When you form a limited company, shares represent ownership of the company, so if you have no plans to share ownership with anyone else, you can simply issue just one share to yourself.
If you do want to have multiple shares in your company, you need to decide how many you want each person involved to have. Shares give you a ‘vote’ within the company, so if you hold three shares and your partner holds two, you can out-vote them on decisions. When you register your company, you will need to have the details for every person you want to have shares, and how many shares you want to allocate to them.
Step 4: choosing your directors
Every limited company is required to have at least one director. Company directors are the people who hold legal responsibility for the company as well as the people who determine company policy.
If you want to keep sole control over your business you can simply register yourself as the company’s only director.
You can choose to have multiple directors, and there are only a few restrictions:
- Directors must not be an undischarged bankrupt
- If you are registering the company in Scotland, directors must be over the age of 16
- Directors must not have been disqualified from becoming a director by a court
When you register your company, you will need the names and addresses of each person you would like to be a director.
Step 5: records and register
When you set up your company, you will need to submit a Memorandum of Association and Articles of Association, which tell Companies House all the significant details about your new limited company, such as its name and location, and the roles and rights of directors and shareholders. Most companies use a standard document which allows the business to conduct almost any activity. If you use an accountant or formation agent, they will submit all the documentation for you.
Once your company is formed you will have to keep your company register up to date with Companies House. You can notify Companies House about any changes to your company details such as changes of address or issue of new shares using their simple online WebFiling service.
Step 6: annual accounts
Filing your annual accounts with Companies House is the sole responsibility of the company’s directors, and you are required to submit your annual accounts and annual return yearly.
If you are not using an accountant you can file both these documents using the Companies House WebFiling service. Most filing is free of charge but there is a £15 charge to file your annual return.
Want some extra help?
So that’s all you need to do to form your own limited company. If you decide you want some extra help with your formation, visit the Companies House website, Business Link website, or contact your formation agent for more details.
This advice has been provided by Duport, for more information about Duport visit www.duport.co.uk
- For a more comprehensive overview of setting up a limited company download IPSE's free Guide to Freelancing
- Taxation of limited companies
- How to choose the right accountant
- Limited Company Calculator for calculating profits, corporation taxes and dividends
- For guidance on the next stages of going freelance return to the checklist for a freelance start-up
- IPSE Supplier Directory, support businesses and services for freelancers