If you have a bright idea and want to turn it into a viable business, one of the first things you will need to consider is its legal structure.
There are essentially three different legal structures: sole trader, partnership and limited company. Each has their own pros and cons, but choosing the right one from the outset is really important.
Here, we are going to focus on limited companies. There are two types: a public limited company (plc) or private limited company (ltd). The latter means that the company shares trade on the stock exchange.
In most cases, new companies will launch as a private limited company, before making the decision whether to float on the stock market.
Although you might be the founder and owner, a limited company is separate legal entity with its own finances and assets. This means that you cannot be held personally liable for it and are only liable for the amount you invest.
This is just one of the benefits of starting a company, rather than being a sole trader. However, to reap the reward, you must be prepared to do a lot more paperwork.
How to register
It is possible to go direct to Companies House to set up your limited company. However, it is time-consuming and complex. A better option, especially for new entrepreneurs is to work with a company formation service, such as RM Information Professionals.
They offer four company formation packages, depending on the level of service you require. The cheapest, at just £20, is all done electronically, so official documents come in the form of a PDF.
If isn’t quite what you want, there are three more packages: Basic, Professional and Executive Package, priced at £52, £70 and £118 respectively. All four packages are subject to VAT and a £14 Government Fee.
What you need
To set up a limited company, you need a name and the UK address of your registered office, names of directors and company secretaries and a statement of capital.
When choosing a company name, you will need to avoid using sensitive words, such as ‘international’ or ‘federation’. It can’t have been already registered with Companies House, be offensive or imply illegal activities.
It’s important to remember that registering a company name with Companies House is not the same as registering a trade mark – that is a separate process, which can also be done with the help of RM online.
A limited company must have one director and one company secretary. The people holding these two positions will be responsible for managing the business and ensuring it complies with all the regulations.
Finally, you will need to make a statement of capital. This document details the number of shares and their value, as well as the names and address of those shareholders. There must be at least one shareholder, but it can be the director.
Paying corporation tax
As a self-employed business person you may have filed a Self Assessment and paid income tax. However, a company must pay Corporation Tax. You should receive information on how to do this once you’ve the business as registered as a limited company.
You will also need to tell HMRC information about your business with three months, such as the date it started, company name and registered number, its address, type of business and date you make your accounts up to.
Once the paperwork is complete, you can set up an online account to file Company Tax Returns and pay Corporation Tax.