Setting up a limited company is a lot easier than you may think. To show you how, we would like to explain the following 7 simple steps.

7 Simple steps to becoming a Limited Company

Aside from the sole trader route, a limited company is the most popular business structure in the UK. Some of the benefits of incorporating a limited company are tax benefits, giving your company credibility and protection of limited personal liability. Limited liability is a concept whereby a person's financial liability is limited to a fixed amount, most commonly the value of a person's investment in a company or partnership with limited liability. If a company with limited liability is sued, then the plaintiffs are suing the company, not its owners or investors which means your financial risk is reduced.

And the really good news is that setting up a limited company is a lot easier than you may think. To show you how, we would like to explain the 7 simple steps of what is involved with setting up your very own Limited Company so you can take advantage of the above mentioned benefits.

Here’s how simple it is:

Step 1: Choose your Company Name

The quickest way to see if your company name is available, go to BeanBalance.com and enter your new company name.

Once you have your company name you can incorporate your company right there and then.

When incorporating your company, you will need to detail each person that is a shareholder and the number of shares allocated accordingly which brings us to our next step quite nicely.

Step 2: Issue shares in your new company

When you form a limited company you need to allocate shares which 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 have multiple owners within your company, you need to decide how these are allocated. Shares are like “votes” which means whoever has the most “votes” has the final decision in running the company. For example if you hold 3 shares and your partner holds 2, you can out-vote them on decisions.

Dividends are the portions of company profits paid out to shareholders. So if you are a 50% shareholder then you will be entitled to 50% of the retained income (company profits after tax) in the business. If you are the only shareholder then you own 100% of the company which means you are entitled to 100% of the retained income in the company.

Essentially dividends relate to shares and how much of the money that a business makes, each person is entitled to.

Step 3: Select your Directors

Company directors are the people who hold legal responsibility for a company as well as determine corporate policy.

Every limited company is required to have at least one director, but a company can of course have as many as required. Company directors are the people who hold legal responsibility for the company as well as the people who determine company policy. The company director can be the only shareholder as well.

There are criteria for being a director:

  • Directors must not be bankrupt
  • Directors must be over the age of 16
  • Directors must not have been previously disqualified from becoming a director by a court of law

Step 4: Complete the mandatory documents

When you set up your company, you will need to submit a Memorandum of Association and Articles of Association, which lets Companies House know all the significant details about your new limited company. This includes company name, location, the roles of each director and the rights of directors and shareholders.

The good news is that when you incorporate your company on BeanBalance this is automatically done for you. BeanBalance uses the standard Memo and Articles of Association issued by Companies House which allows the business to conduct most activities. All you need to do is complete the information and BeanBalance will do the rest of the admin stuff.

Going forward however it’s your responsibility to ensure that Companies House has the most up to date details at all times. For any changes that need to be made, simply go to the Companies House WebFiling service.

Step 5: Open a business bank account

All money that goes in and out of your limited company needs to be traceable and each stage fully visible for tax purposes so it’s vitally important to keep your personal and company finances totally separately. This is why you need to set up a bank account in your company name and use solely for such transactions.

Once you have used BeanBalance to incorporate your company, you will receive an email from BeanBalance with all the relevant documentation needed to open a company bank account. We recommend HSBC as they provide a good service for small businesses.

Step 6: Start trading

Now that we have a company name with named directors, completed all the documentation and opened a company bank account, it’s time to start trading.

For each service provided or product sold, it’s important to generate an invoice and have these paid into the bank account we have just set up. Expenses should ideally also be paid from this account too to keep things streamlined and clear so you can keep track of your cash flow and expenditures.

Step 7: Submit your annual accounts and financial statements to the HMRC and Companies House

As a company director, it is your responsibility to ensure that your returns are submitted in time to avoid the tax man issuing any penalties. Whilst this may sound daunting, it’s not as bad as it sounds.

Annual accounts or financial statements have to be submitted to HMRC. Companies House also need a copy of these as well as The Annual Shuttle Return (ASR). This just confirms the details of all the directors, shareholders and the registered address of the company.

The ASR can be done on Companies House website and costs £14.00 to complete. It is very important that you submit this return every year on time (first return due 1 year after incorporation). Failing to do so will result in your company automatically being struck off the registrar and any money left in your business bank account will be transferred to The Crown.

So just a quick recap on the 7 simple steps:

  1. Choose a company name
  2. Issue shares in your newly registered company
  3. Select your Directors
  4. Complete mandatory documents
  5. Open a company business account
  6. Start trading
  7. Submit your annual accounts and financial statements to the HMRC and Companies House

There you have it. 7 simple steps to becoming a limited company using BeanBalance, and it's free!

Posted by: BeanBalance
Last revised: 30 Jul, 2013 07:14 AM