Simply put, a Limited Company is a company in which the liability of members/subscribers are limited to what they have invested. This helps take all the weight off of investors as well as protect them. It is also a good first and affordable step to becoming a full on legitimate business. Just make sure you understand how it protects your investment and what liability it leaves you with before you get overwhelmed with the many different kinds of incorporation.
Here are 7 steps to take to form a limited company:
1. Yourself vs. Formation Agent: If you set up the company yourself it can appear to be the cheapest option in the short term and you can do this directly with Companies House. However it can be difficult to work out which forms to fill in and can take longer to process. Plus you will need to supply your own memorandum and articles of association which can be time consuming and expensive to obtain. Using an online formation agent is much easier as they will have an online application that you have to fill in which they then use to form your limited company.
2. Company Name: Picking a name is an important part of setting up a new company, but don’t let the excitement distract you from doing some research. Check that your name is available before applying so that your application isn’t rejected. Also make sure that the URL you will want after forming your company is available and that someone else doesn’t have a trademark on the use of the name. Finally check your name against the sensitive words list on the Companies House website. If you use a sensitive word, you may have to provide supporting documentation or obtain approval from a Government department to use it.
3. Business Plan: Make sure you don’t start your company without putting in place a business plan. Without one you do not have a “road map” helping you with what direction you are going. In addition you may well have to provide a plan to your bank when looking for funding.
4. Company Secretary: Carefully consider whether you should appoint a company secretary. Just because it is no longer compulsory does not necessarily mean that you should not appoint one. Their tasks include Companies House filing and maintaining the Company Register which are important legal requirements. Having an experienced person who can focus on these compliance matters takes some of the burden away from the directors, allowing them to focus on managing the company and growing revenue.
5. Registered Office: Using your home address can result in privacy issues as it is made publicly available. Always consider using a different registered office address, even that of your accountant or solicitors.
6. “Off the shelf” Companies: It is usually not beneficial to buy an off the shelf company. By using one you are buying a limited company that has already been registered at Companies House, and in theory has never traded. However you do not personally know the initial shareholders and officers and therefore it is always advisable to incorporate a company yourself.
7. Limited Company vs. Sole Trader: You should make sure you seriously consider whether your business should trade via a limited company or via you as an individual and sole trader.
Deciding how to incorporate your business is a very important step as there are very good reasons to go with a limited company. Just make sure that it is beneficial for you before jumping into an incorporation when forming your business.
If you are a business owner and have some experience, we would like to know, what route did you take your first company in and why?