Setting up a limited company

Why is it called a limited company?


The term 'limited' stems from the fact that the company's finances and assets are entirely distinct from the personal finances and assets of its owners.Shareholders in limited liability companies are not responsible for company debts, although if required, directors may be required to guarantee loans or credit granted to the company.


If you are a sole trader you are personally responsible for all the debts you incur.


The minimum requirements of a limited liability company are:

• The company must be registered at Companies House (CH).
• Annual accounts must be filed at Companies House.
• An annual Return must be completed each year to update Companies House with basic details relating to the company. It must be completed within 28 days of your company 'made up date' each year. You can file this on paper or online for a smaller fee.
• HMRC must be informed if the company has any profits or taxable income in a company year.
• The company must send HMRC a corporation tax return each year and pay any tax due within nine months and one day of the company year end.
• The company must register for PAYE and deduct income tax and national insurance from what it pays its employees and directors.
• It must inform HMRC of any benefits-in-kind provided to its directors or certain employees.

Following changes made in the Companies Act 2006, a limited liability company formed under it no longer has to have a company secretary.


Who are Companies House?


Companies House is responsible for company registrations in Great Britain. It also has a key role in providing information about British companies.


Who can form a company?


One or more persons can form a company for any lawful purpose by subscribing their name(s) to the memorandum of association and complying with the legal requirements for incorporation. In law, 'person' includes individuals, companies and other corporations. Those persons who subscribe their names to the memorandum of association are known as "subscribers".


How is a company formed?


This overview is a brief guide to the simplest incorporation i.e. private company limited by shares with straightforward articles and a non contentious name.


You or an agent acting for you must complete and return the following documents to Companies House to register a company:


Application to register a company (Form IN01).


- an eighteen page document setting out the company's name, registered office, first directors and officers, shareholding etc.


Memorandum of Association


- Includes company name, location, and business type.


Articles of Association


- outlines directors' powers, shareholder rights, etc. (unless you decide that the model articles downloadable from CH website are relevant to your company and should apply in their entirety).




Additional information 


-if your application includes a prescribed or sensitive word or expression.


The CH fee for registering the company.


- currently £20 except for “same day registrations”.




These documents are often prepared by a company formation agent, or your accountant. There is no legal requirement to use an agent, but it's typically a hassle-free process compared to doing it yourself.


You can file the application electronically or you can send a paper application.


The Companies House website provides detailed guidance and FAQ's which describe all aspects and requirements of the registration process, including what you can call your limited company, and the documentation required to complete the registration process.




What is included in a Form IN01?


The company's name


Before you incorporate your company you will need to choose a name.


The name you choose must not be identical or the ‘same as’ another name appearing on the CH register company names, even if you are already using the name as a sole trader or partnership.


You can check if your preferred name is available by searching the index of company names on the CH website.


You should also check the Trade Marks Register of the UK Intellectual Property Office to ensure your proposed name does not infringe an existing trade mark.


The characters and punctuation you can use in a company’s name are specified by law. While accents may not be included in a company’s registered name, this does not prevent their being included in the company’s stationery.


You will normally only have to seek prior approval for a company’s name if it includes a specified word or expression or implies a connection with Her Majesty’s Government, a devolved administration, a local authority or a specified official body.


The company’s registered office


All companies must have a registered office, which must be a physical location in the United Kingdom (not a PO box). You must choose whether the registered office will be in England & Wales, Wales, Scotland or Northern Ireland and state the address of the company’s registered office on incorporation.


It can be your business address, the address of your accountant or any other address you choose. However, it must be an address at which you will be able to deal with all official letters and notices you receive.


The type of company


There are four main types of company:


Private company limited by shares:


This type of company has a share capital and the liability of each member is limited to the amount, if any, unpaid on their shares. A private company cannot offer its shares for sale to the general public.


Private company limited by guarantee:


This type of company does not have a share capital and its members are guarantors rather than shareholders A company is limited by guarantee if the members liability is limited to such amount as the members undertake to contribute to the assets of the company in the event of its being wound up.


Private unlimited company:


This type of company may or may not have a share capital but there is no limit to the members' liability. Because the members’ liability is unlimited, the company has to disclose less information than other types of company.


Public limited company:


This type of company has a minimum share capital of £50,000 and limits the liability of each member to the amount unpaid on their shares. A public limited company may offer its shares for sale to the general public and may also be quoted on the stock exchange.


Community Interest companies (CICs) can be incorporated as private or public companies. Private companies also include Right to Manage Companies and Commonhold Associations.


The company’s officers


The company’s officers are the directors and the company secretary, if you decide to appoint one or are required to do so.


Private companies must appoint at least one director but do not need to appoint a secretary.


A company may be an officer of another company but at least one director must be an individual.


Public companies must appoint a minimum of two directors and a secretary. One of the directors must be an individual.


Can anyone be a company director?


The only legal restrictions preventing anyone becoming a director are:
they must not have been disqualified from acting as a company director (unless the court has given them permission to act for a particular company);
they must not be an undischarged bankrupt (unless they have been given permission by the court to act for a particular company);
they must not be under the age of 16.


Statement of capital and initial shareholdings


This sets out:

• what classes of shares comprise the company's initial share capital;
• the rights attaching to them;
• the ccurrency in which they are to be issued;
• the maximum amount which can be issued for each class;
• the number of shares actually issued and to whom.

What is the memorandum of association?


The memorandum of association is a short, authenticated or signed statement of the intention of those forming the company (the subscribers), to be incorporated.


The document will include the subscribers’ names and that they agree to become members of the company.


Once the company has been incorporated, the memorandum will no longer affect the ongoing operation of the company. There is no way of amending the memorandum once registered.


What are articles of association?


The articles of association are the company's internal rule book setting how it is to be governed. They typically cover the issuing of shares (also called stock), the different voting and dividend rights attached to different classes of share, restrictions on the transfer of shares, the rules of board meetings and shareholder meetings, and other similar issues.


A company can adopt its own tailor-made articles or it can adopt model articles prescribed by the Secretary of State.


Model articles are available for private companies limited by shares, private companies limited by guarantee and public companies.


When you complete the ‘Application to register a company (Form IN01) you will need to indicate if the proposed company is adopting:

• model articles in their entirety (copy of the articles not required);
• model articles with amendments (copy of the amended articles as amended must be sent with the IN01but need not include the text of provisions of model articles that are adopted without amendment); or
• bespoke articles (copy of the articles must be sent with the IN01).

If you do not indicate which articles you are adopting, CH will automatically apply the model articles appropriate to your company type.




What do I do with the incorporation documents?


You may file them with CH either electronically or on paper.


Electronic filing


You may do this via CH's website. Incorporation usually takes 3-4 hours.


Paper Filing


If you file paper documents you should send them to Companies House in:

• Cardiff, if the registered office is to be situated in England and Wales or Wales;
• Edinburgh, if the registered office is to be situated in Scotland;
• Belfast, if the registered office is to be situated in Northern Ireland.

For an increased fee, CH also offer a ‘Same Day’ incorporation service for paper filing in Cardiff, Edinburgh and Belfast, allowing you to register the company on the day they receive the documents, provided they reach them before 3pm (Monday-Friday).


When filing ‘Same Day’ applications by post, courier or by hand ensure you clearly mark the envelope “Same-Day Incorporation”. Paper filings, which must be sent to the appropriate office, take longer to process than those filed electronically.