10 Key Things to Consider When Setting Up a Limited Company

Setting up a limited company is an exciting step, but there are several important things to think about. Here’s a straightforward guide to help you through the process:

1. Is a Limited Company Right for You?
When starting a business, you’ll need to decide between being a sole trader or setting up a limited company. A limited company offers more protection and limits your personal liability, but it also comes with more rules and responsibilities. We have a guide that explains the differences to help you choose the best option for your situation.

2. Choosing a Company Name
Your company name must be registered with Companies House and should end with "Limited" or "Ltd." It can be different from the trading name you use. Make sure the name isn’t too similar to existing companies and doesn’t include inappropriate or illegal words.

3. Limited by Shares or Guarantee?

• Limited by Shares: This is for companies where shareholders invest money and own shares. It’s a good option if you want to make a profit and benefit personally.

• Limited by Guarantee: This is typically for non-profit organizations, like charities or social clubs, where you guarantee to cover the company’s obligations rather than invest money.

4. Directors and Shareholders
Decide who will be the directors (who run the company) and shareholders (who own the company). You can be both a director and a shareholder. You can also set up different types of shares to manage how profits (dividends) are distributed, which can help with tax efficiency.

5. Registering with Companies House
You must register your company with Companies House, which costs £50 and usually takes about 24 hours. You’ll need to provide details like your company name, directors, shareholders, and your SIC code (which describes what your company does). You’ll get a Certificate of Incorporation, which proves your company’s existence.

6. Registering with HMRC
Within three months of starting to trade, you need to register for corporation tax with HMRC. If you plan to start trading soon after registering with Companies House, you can do this at the same time. If your business income reaches £90,000, you must register for VAT and start filing VAT returns. If you have employees or pay yourself a salary as a director, you’ll need to set up PAYE with HMRC and run a payroll.

7. Open a Company Bank Account
You’ll need a separate bank account for your company. All business income and expenses should go through this account, separate from your personal finances.

8. Use Accounting Software
Invest in good accounting software like FreeAgent or QuickBooks. It helps track your business performance, manage finances, and keep your records organized. You’ll need to keep financial records for at least six years by law. If you're VAT registered, the software should help with Making Tax Digital and keep your VAT invoices and receipts in order.

9. Create a Business Plan
A business plan helps you understand your market, set goals, and avoid pitfalls. It’s essential for outlining how you’ll deliver your product or service and achieve success.

10. Set Up a Budget
A budget helps you manage your spending and monitor your financial health. Use accounting software to track your income and expenses against your budget. Adjust your budget as needed to stay on track.

Setting up a limited company involves a lot of details, so consider getting help from a professional accountant. They can guide you through the process and ensure everything is handled correctly.

Who are Kernow Accountancy?
Kernow Accountancy is a family-run business that uses advanced technology to offer close support for your company. Our team of accountants and bookkeepers will take care of your finances, so you can focus on growing your business.