So, the time has come, and you’re approaching the exciting next step of setting up a limited company! Well done! A lot of hard work and planning has probably gone on behind the scenes, and you’re now at the point you’re ready to take the next big step in your career. We’ve written this short guide to help you better understand the process of how to setup a limited company, highlight the pros and cons, and sketch out how we can lend a hand. If you haven’t already, we heavily recommend going straight to the Companies House website and getting an overview of the process here.
Why Go Limited?
Before we get into the how, let’s take a moment to make sure that a Limited Company is definitely the right choice for you.
Pros of a Limited Company
Asset protection: A limited company ensures that any debt stays within the boundaries of the company. This means that if the worst happens (and we sincerely hope this never occurs), your personal assets – home, car, Grandma Gloria’s porcelain collection – are safe.
Tax efficiency: A limited company will change your status from self-employed to employee. If your withdrawals from the company are structured correctly, then you may pay less tax than if you are self-employed.
Professional appeal: That “Ltd” at the end of your business name adds impressive clout to your professional reputation. It may sound like a superficial benefit, but it definitely gives an air of added credibility to clients and suppliers.
Makes funding easier: If you’re looking for investors to back your business, you may stand a better chance by opting for a limited company. This is due to the structure of a limited company, which offers better transparency and a more professional front than a sole trader or partnerships do.
Cons of a Limited Company
Every silver lining has a cloud. Wait. No, that’s not right. Anyway, before you plunge into the limited company pool, it’s a good idea to know what you’re getting yourself into.
More admin work: This isn’t going to come as a surprise, but a limited company has a LOT of admin standards to meet. From an accounting perspective, you’ll have to file annual accounts and keep extremely detailed records. If you’re not a fan of paperwork, you might want to think about hiring a good accountant (ahem) or an in-house bookkeeper to assist.
Less privacy: This is something that could be very important to some, depending on the industry you’re working in. However, if you’re a good guy and doing your best to be open and honest, having your company details, directors’ names and addresses and business finances open to the public on Companies House shouldn’t be a big problem (there’s nothing there that could give you potential trouble in the future).
Brass tacks. Here’s a step-by-step recipe for setting up your limited company:
- Decide on a company name. This is actually harder than it sounds, as you really want to make sure it’s unique. It can’t sound too similar to existing names on the Companies House register. You can check the availability of a name here.
- Appoint directors and shareholders. We’ll do a more detailed blog describing these two roles at a later date, but you basically want to decide who the boss or bosses are going to be (directors) and who owns the business (shareholders), and yes, these can be the same people if you want.
- Prepare key documents. The most important include the Memorandum of Association and Articles of Association. We don’t have much advice on doing this yourself except to get yourself a good accountant (repetitive, we know). They can be complicated and hard to get right without previous experience.
- Register with Companies House. This might be the easiest part of the process. Get together your business name, directors details, shareholder info and a registered address (this will be public, so a lot of folks opt to use their accountant’s address) and then pay the registration fee.
- Get your certificate of incorporation. This is like the report card that says you’ve ticked all the boxes, passed GO and you are now recognised as an official company.
- Register for taxes. This was always going to be inevitable. You’ll need to sign up for Corporation Tax with HMRC within the first 3 months. We understand the irony of asking permission to please pay taxes, but the alternative is not worth it. Believe us.
- Open a business bank account. Always keep business and personal separate. Set up that account and use this one, and only this one, for everything business.
- Get accounting software. Choose the right accounting software for your business and link you business bank account to it. You can read about some of your software options here.
Sound like a lot of work? It kind of is, really. You know what would make it a whole lot easier? Us! We’ve done all this hundreds of times and are really good at it. Go put the kettle on and schedule a meeting with us here. See you soon!
