From idea to incorporation: how to incorporate a limited company

What you will learn

• What a limited company is and what being a director and shareholder means;
• The steps you need to take in preparation for incorporation;
• How to create a share capital; and
• What you need to do following incorporation.

What is a limited company?

A limited company is a business structure with separate legal personality from its owners. A company can, separate from its owners, enter into contract, own property, and is responsible for its own debts. Shareholders of a limited company benefit from limited liability, meaning that their personal liability for company debts is limited to the amount already invested by them into the business.

The following steps will guide you through the process of setting up a Limited Company in the UK:

Before incorporation:

Choose a name – Your company name must be unique and cannot be too similar to other companies. Carry out a search on the Companies House register for a list of businesses with similar names. The name must end in ‘Limited’ or ‘Ltd’ and mustn’t be offensive, suggest you hold professional qualifications you don’t have or suggest any connection with the Royal Family or government.

Select an address – Your company must disclose the address of its registered office which will be the address used by Companies House and HMRC for correspondence. This can be any address in the UK, but think carefully before using your home address – the address is displayed publicly on the Companies House website.

Directors and shareholders – Limited companies must appoint at least one director. Directors are responsible for running the company. Any director must be at least 16 years old and not be disqualified from acting as a director. A full list of a director’s responsibilities is set out here.

A limited company must have at least one shareholder. Shareholders own the company and are usually entitled to vote at meetings of the shareholders, receive a share of profit and receive proceeds of sale. A shareholder can also be a director. We recommend appointing one person as director and shareholder on incorporation as it simplifies the process of getting a bank account opened for the company.

Incorporation

To incorporate your company, you will complete an online form. We recommend doing this either via Companies House (the UK regulator of companies) or via Tide (a neo-bank who will refund the company filing fee and open a bank account for the company).

Incorporation is fairly straightforward, but there are a few things that catch people out:

Documentation – You will need to create articles of association (which are the rules of the company). Whilst you can create your own, we advise ticking a box to use the standard articles set out in the Companies Act 2006. You can change them later. One point to remember: if you incorporate with one director, the articles will need to be amended following incorporation to change the quorum provision at article 11(2) from two directors to one director.

Share capital – You will need to create shares. Ownership of shares gives you a right to a vote, a right to receive a dividend and a right to receive proceeds of sale. You should select “ordinary” shares, set the nominal value at £0.01 per share and create a small number of shares – 100 is usually sufficient.

ID verification – Each director and shareholder holding more than 25% of the shares will be required to verify their ID with Companies House. This is usually a quick electronic process resulting in the individual being given a code. You will need the code for each director and 25% + shareholder at incorporation in order to incorporate the company.

Completion of the application – You will be required to pay a fee of [£50.00]. Companies House will email a a certificate of incorporation within a couple of days. Keep an eye out for a letter from Companies House containing a filing code for their online platform.

Companies House will also notify HMRC. You will receive a letter from HMRC within a few weeks containing a Unique Taxpayer Reference. Don’t lose it!

Following incorporation

Once you have incorporated your company, consider whether you need to complete the following tasks

• open a business bank account;
• get some accounting software;
• appoint other directors and shareholders;
• instruct a solicitor to draft customer contracts and related commercial documentation; and
• Get set up with PAYE so that you can employ people.

Next Steps

For help with any of these matters, you can reach out to us by calling 020 7952 1723, or emailing [email protected].