THINGS TO CONSIDER WHEN SETTING UP A LIMITED COMPANY
According to the official statistics published 30th April 2020 between January – March 2020 169,822 new incorporation's registered with companies house. The figures show prior to the coronavirus lockdown many people had the desire to run their own business and many others probably took the time to research into how to set up their own business during this period.
On the home page of www.thecbsltd.com under the heading “Still deciding about outsourcing your bookkeeping services (accounts)” are some more statistics regarding new companies and the issues they face.
If you are deciding on your future correctly then although you may know what the business will do i.e. professional service, manufacturer etc you still need to prove that the concept will be viable and how to go about setting up a company.
In a previous blog I set out the 11 steps to setting up as a sole trader (Self-employed) the other option is setting up a limited company. Hopefully either of these articles will be of interest to you in achieving your dream of setting up your own business. In a future blog I will describe the for and against reasons for choosing to set up a company either as a sole trader or a limited company.
If you are looking for your business to be a limited company then your initial choice is do you need it to be limited by shares or limited by guarantee, or put another one that makes a profit or a business that is not for profit.
So, both are:
Legally separate from those that run it
Bank accounts / finances are business entities not personal
For a Company Limited by Shares
It has shareholder(s) and shares
After paying the necessary tax(es) it can keep any profits
For a Company Limited by Guarantee
It has guarantors and a ‘guaranteed amount’
Any profits made are invested back into the company
Items to do before trading
Create a Business Plan
This topic was covered in 11 Steps to setting up as a sole trader (Self-employed) Post 2 of 10
Create Name of Your Limited Company
Unlike a sole trader for a limited company you must register a company name within a certain criterion. Unlike a sole trader business the same name could be used by more than one business across the country, with a limited company it has to be unique and not be too similar to another company’s name or trade mark and it must end with ‘Limited’ or ‘Ltd’.
‘Same as’ names
Is where the only difference to an already used name is:
· Use of punctuation
· Use of special characters
· Use of a word or character that looks similar in appearance or meaning to another from an already used name
· Use of a word or character commonly shown in UK company names
‘Toads UK Ltd’ and ‘Toad’s Ltd’ are the same as ‘Toads Ltd’
You are still able to register a ‘same as’ name if:
It is part of an existing group of Limited Liability Partnership (LLP) or company already using the name.
The existing company or LLP has no objection and has given you written permission to use your new name.
‘Too like’ names
Even if you have registered a name you may still have to change it if another company complains to Companies House and it agrees that your name is ‘too like’ a name previously registered prior to yours.
‘Easy Toads For You Ltd’ is the same as ‘EZ Toads 4U Ltd’
If Companies House have agreed with a complaint about your name they will contact you and advise you what to do.
A company name must be non-offensive
It must not contain a ‘sensitive’ word or expression, or suggest a connection with local authorities or government, unless you have written permission.
To use ‘Cabinet Office’ within your company name, you need permission from the Cabinet Office.
For further guidance on ‘Other Rules’ go to the gov.uk website and search ‘Incorporation and names’
The name when you incorporate with Companies House does not have to be the name you trade under. You can trade using a ‘business name’ if it complies with all the naming regulations as your registered name.
Displaying Your Name
For businesses run from home there is no requirement to display a sign, but for commercial premises and wherever your business operates you must display a sign showing your company name. Even if you are not open you should be able to see it and the letter be of a sign and font that is readable.
WHEN YOU DO NOT HAVE TO USE ‘LIMITED’ IN YOUR COMPANY NAME
If your company is a registered charity or limited by guarantee the word ‘limited’ does not have to be used if your company articles of association state’s the following:
· Your company promotes or regulates commerce, art, science, education, religion, charity, or any profession.
· Your company is unable to pay its shareholders, for example via dividends
· You company requires each shareholder to contribute to company assets if its wound up during its membership, or within a year of them stopping being a shareholder.
This topic was covered in 11 Steps to setting up as a sole trader (Self-employed) Post 3 of 10
Running a company has responsibilities’ even more so if a limited company:
When a company is incorporated it submits articles of association a set of rules on which the company is run, and the director must follow.
A director is responsible to keep company records and advise Companies House of certain changes. A Director can use the services of an accountant and/or bookkeeper for keeping records up to date or filing accounts and tax returns. Directors are still legally responsible for the company’s records, account’s and performance.
A Director is responsible for Corporation Tax Payments (See Section on Corporation Tax for further information)
These include any change of the company office address, if approved by Companies House they will advise HMRC.
The new address must be in the same part of the UK in which the company was registered i.e. If you registered in England and Wales, then so must be the new registered office address.
The change is only official once Companies House have registered it.
If a Director fails to meet his responsibilities they could be fined, prosecuted or disqualified. (See Company Director Disqualification section for further details)
Other Changes that must be reported
If any of your business contact details change then you must update your details for all the taxes and schemes your company is registered
· Corporation Tax (Advise Companies House of changes before telling HMRC)
· PAYE for employers
· VAT (Tell HMRC within 30 days of changes)
· Construction Industry Scheme (CIS)
If you have a tax advisor or an accountant
The following changes must be told to Companies House within 14 days of the change. These changes can be reported online to Companies House or via paper forms.
Any change to the address where the company records are kept, and the type of records there.
If there is any change in directors or any of their personal details i.e. change of address.
If there is any change in ‘people with significant control’ (PSC) or any of their personal details i.e. change of address.
Any change to the company secretary (If a new one is appointed or removal of an existing one.
If any additional shares are issued in your company, you must advise Companies House within a month of this occurring.
Changes that shareholders must approve
Shareholders may have to vote on the following decisions
· Change the company name
· Remove a director
· Change the company’s articles of association
Directors and Company Secretary Appointment
A limited company must be set up with at least one director. A director must not be on the list of disqualified directors and must be 16 or over.
A company must have a UK registered office address, but the director(s) can be resident in another country.
The names and personal information of directors are available to public view via the companies house website.
Information also available from companies house is the service address provided by the company director, but if this is their home address they can have it removed from public view if they ask companies house.
A private limited company can function without a company secretary. Some use a secretary to take on some of the director’s responsibilities, but this does not take away the legal responsibilities of a director.
A director can be a company secretary, but a secretary cannot be:
The company auditor
An ‘undischarged bankrupt’ – unless they have permission from the court.
There are various checks available to search if a person is fit and proper to be a director.
Companies House for disqualified directors register
The Insolvency Service for summary of results of reasons why a director was disqualified these are available up to 3 months from publication.
The Insolvency Service for Individual Insolvency Register (IIR)
Decide who the shareholders or guarantors are
When many limited companies are set up, they are ‘limited by shares’, meaning shareholders own the company. At the time you register your limited company with shares you must provide details of the number of shares issued and their total value (this is the company’s share capital) and details of all shareholders. The value of the shares is the amount the shareholders are liable for if the company is shut down. So, if you are the sole director you issue 1 share at a value of £1 therefore limiting your exposure to £1.
A company can have various type of shares, examples being:
Deferred Ordinary Shares
Non-voting ordinary Shares
Cumulative Preference Shares
If a limited company is set up as limited by guarantee it must have at least 1 guarantor and a ‘guaranteed amount’.
· are company members
· Control the company
· Tend to reinvest profits back into the company
As per the original share value the ‘guaranteed amount’ is the guarantor liability if the company is shut down.
People with significant control (PSC)
Limited companies and Limited liability partnerships are required to record details of their beneficial ownership in a register of people with significant control (PSC register).
A PSC is regarding as an individual who:
· holds more than 25% of the shares in a company,
· holds more than 25% of the voting rights in a company
· holds the right to appoint or remove the majority of the board of directors
To comply with this requirement a company must take reasonable steps to contact its PSCs and confirm the information for the register. A criminal offence is committed if someone fails to provide the required information.
Details of the register and within 14 days of any subsequent changes to the companies register should be registered with companies house.
Memorandum and articles of association
Memorandum and articles of association are required documents when registering a limited company.
Memorandum of association can either be completed online while registering or sent by post.
Articles of association are the rules in which the company is run by, this can be a standard set of articles or you can provide your own set or rules either by uploading or sending a copy by post.
Company and accounting records
If the following records are not kept at the company’s registered address then you must advise HMRC.
· Directors, shareholders and company secretaries
· Shareholder votes and resolutions
· PSC Register
· Company schedule for loan repayments
· Company schedule for payments regarding claims against the company
· Transactions when someone buys shares in the company
· Loans or mortgages secured against the company’s assets
This topic and bookkeeping service requirements for your business are covered under our Bookkeeping Guide page on our website. https://www.thecbsltd.com/a-guide-to-bookkeeping
These records must be kept for 6 years after the end of the financial year or longer if:
· A transaction spans more than one accounting period
· A purchased asset is expected to last more than 6 years
· Unless HMRC have started a check into your company tax return.
If for some reason these records are lost, stolen or destroyed and you are unable to replace some or all of these records you should advise HMRC Corporation tax office straight away. Include this information in your company tax return.
Failure to keep accounting records can lead to a fine or disqualification as a company director.
Register your company
Details you will need to register a limited company with companies house.
A physical address in the same part of the UK your company is registered in
A standard industrial classification (SIC) code, this is a number associated to the type of business your company will perform.
At least 3 pieces of the following personal information for shareholders or guarantors
· Town of birth
· Mother’s maiden name
· Fathers first name
· Telephone number
· National Insurance Number
· Passport Number
The current charge to register a Limited Company online with Companies House is £12 (June 2020). Once your company is registered you will receive a ‘certificate of incorporation’ proving the company legally exists, the company number and its formation date.
Register for Corporation Tax
A limited company can register for corporation tax within 3 months of starting your business. This could be done at the time you register your company otherwise you will have to wait until you receive your company’s 10-digit Unique Taxpayer Reference (UTR).
Other information needed:
· Company registration number
· Business start date
· End date of your financial year
Register for VAT
This topic was covered in 11 Steps to setting up as a sole trader (Self-employed) Post 6 of 10
Register as an Employer
This topic and Employing staff for the first time are covered under our Payroll Guide page on our website. https://www.thecbsltd.com/payroll
Open a Business Bank Account
A business bank account is mandatory for a limited company as it is a legally a separate entity.
If you need financial help at the start of your business or in the future having a business bank accounts shows that you are serious about your business.
There are many various types of insurances available but not all are a legal requirement, listed below are some examples of available insurances. Your business will need to check out and purchase the relevant insurances suitable for their working practices.
Employers Liability Insurance
This is for staff injuries at work this insurance is a legal requirement for those that employ one or more staff. This insurance also applies if you employ casual workers i.e. temps or seasonal workers. It is also a requirement to display the certificate in a location that all staff can see it.
If you are a sole director limited company and no staff or employ only close family members you could be exempt from requiring this insurance.
Public Liability Insurance
If the work your company does has the potential to harm a member of the public, or if your business interacts with the general public then this insurance would cover a potential claim. In addition to this type of insurance you may which to consider cover for legal representation as well.
It may be that if you quote for contracts or your work means you go to other premises to work then it may mean having this type of insurance is a requirement.
Professional Indemnity Insurance
This type of insurance will cover you for any professional negligence claims made by clients.
Product Liability Cover
This type of insurance will cover you if you make a product that is used by others and has the potential to harm someone or if it malfunctions.
Allowable Expenses and Employee Benefits
Allowable expenses are those that are wholly and exclusively to the business. If you have a long period before you start trading any pre-trading expenditure up to 7 years prior will be treated as being incurred on first date of trading. As long as these would be normal allowable business expenses following the commencement of trading.
A list of allowable expenses and employee benefits can be found at the following location on gov.uk website.
Bookkeeper, Accountant or Do Your Own Accounts
Unlike self-employed accounts a limited company has a legal requirement for the following
· Keeping records of your business activities i.e. sales, purchases and expenses
It is not mandatory for a limited company to get a professional to do their accounts or tax return. For some businesses, their year-end accounts are straightforward and not time consuming and limited tax implications.
For other businesses are more complicated and more time consuming and being unaware of any tax changes could cost more tax in addition to a possible fine. A solution if you are confident to do your own accounts to a standard then hand them over to a professional to complete.
Within The Institute of Certified Bookkeepers (ICB) there are bookkeepers with the qualifications to do Final accounts for Mico Entities, Final Accounts of a Sole Trader and Self-Assessment Tax returns.
If you are looking to take the plunge and start up your own business, hopefully this article and 11 steps to setting up as a sole trader (self-employed) have been of interest to you. If you are still looking to take those step’s contact us to discuss these options and the best set up for your personal circumstances.
Disclaimer: Refer to HMRC website for further details and any revisions