Forming a limited company

You and your friends are forming a limited company for a new business venture and aside from the potential tax savings (see here), what are the other important points to consider?

Forming a limited company

Forming a limited company: methods to form a company

Probably the first thing to decide is the method of forming a limited company. This can be done in three different ways:

  • You can register the company yourself with Companies House.
  • You can pay a company formation agent or accountant to do this for you.
  • You can buy a on ‘off the shelf’ ready-made company and then change the name, directors etc.

The simplest way is usually either paying a company formation agent (such as CompaniesMadeSimple) or having your accountant form the company.

Forming a limited company: choosing a company name

When forming a company, one of the most important decisions will be the company name.  When deciding on a company name you'll need to take the following into account:

  • No two companies can have the same or similar names. So you’ll need to check the Companies House Register (or use an online tool) to make sure the name isn't already taken - otherwise you could find another company complaining!
  • The name of your company must end in Limited or Ltd, or the Welsh equivalent (except for certain charities, sports clubs etc)
  • The name can’t be offensive
  • The name can’t imply a connection with the government, a devolved administration, local or public authority
  • It can’t contain ‘sensitive’ words or expressions without approval

​We’d also recommend that you check the trademark register to ensure you aren’t infringing an existing trademark.

And if you’re developing an online presence for your business, if you don't already own the website domain for your company name then we'd recommend you check that the domain is available and get it registered as soon as possible! You can check Namesco first to ensure that the URL is available.

Forming a limited company: registered address

The next step when forming a limited company is deciding on your company’s registered address. This is where all official Companies House and HMRC correspondence is sent.

The address must be:

  • A physical address (a PO box can be used but must be followed by a physical address and post code)
  • In the same country as the country is registered in: for example, a company registered in England will to have a registered address in England

If you don’t want your home address to be visible then you could use a third party address such as a managed office or a specific registered office service.

You could use your home address, but be aware that this will then be publicly visible on the Companies House register. Additionally, if you are renting a property you may require your landlord’s permission first.

Forming a limited company: shareholders

When forming a limited company you’ll then need to decide who the initial shareholders are going to be. The shareholders will be entitled to dividends and can vote on issues affecting the company. Bear in mind the following:

  • The company must have at least one shareholder on formation
  • Shareholders can also be directors
  • There is no upper limit to the number of shareholders

You’ll need to decide how many shares you want to issue (either 1 or 100 is a common number – we tend to prefer 100 as it gives more flexibility later if you want to issue shares to someone else) and what the nominal value per share should be (£1 is often used for simplicity).

Depending on who’s going to be a shareholder in the company, and what their role will be, you might want to have more than one class of shares – you can read about alphabet shares here.

If you don’t include other shareholders on formation you can always issue new shares at a later date (for guidance see our earlier blog here) or transfer existing shares (if you’ve formed the company with more than 1 share).

We also recommend you always have a shareholders agreement in place.

You could include your family members as shareholders when you form the company, though there are potential tax issues involved where shares are issued to your spouse or children.

Forming a limited company: directors

Last and by no means least, the company will need to appoint directors. Directors are legally responsible for running the company and filing all necessary accounts and returns – these are legal duties and directors can be fined if they don’t carry out their duties properly!

The company must have at least one director who must:

  • be 16 or over
  • not be disqualified from being a director
  • not be an undischarged bankrupt (unless given court permission)

Another company can act as a director, but you must have at least one real person as a director.

Following registration, directors’ names and home addresses are publicly available on Companies House - although you can avoid having your home address visible if you use a service address.

A private limited company doesn’t need a company secretary and most companies formed now only have one or more directors – and no company secretary.

Our eBooks cover this and many other topics.  Check them out here.

And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at [email protected].

Disclaimer

The information and advice contained within this website and blog are of a general nature and are not intended to be a substitute for professional advice for your specific circumstances. We recommend that you always obtain specific professional advice before taking or refraining from any action relating to any information contained within our website. Whilst we make every effort to ensure the examples and information in our articles are complete, accurate, reliable, error free and up to date, we do not warrant that it is such. The information provided also only shows an overview of relevant legislation and regulations at the date of publication. We therefore do not take any responsibility or provide any warranties should you act on this advice without seeking appropriate professional advice. We make every effort to ensure that we accurately represent our products and services and their potential for helping individuals and business owners. Examples of client gains, income generated and other results are not necessarily average or typical nor intended as representations of your potential growth. As with any product or service, results may vary significantly. Each individual’s results depend on his or her ambitions, background, dedication, motivation and desire. Significant financial risk is possible with any supplier if you don’t do your own due diligence and get suitable professional advice.  No guarantees of specific results are expressly made or implied.  ALL Rights Reserved.

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