How to set up a limited company

Discover what a limited company is, how to set one up and whether you should bother doing it at all.

Setting up a limited company isn’t as complicated as you may think. Below, you’ll discover how to do it.

What is a limited company?

This is a type of business structure where the company is legally separate from its owners. This means the owners’ liabilities are limited to their stake in the company.

A limited company typically has shareholders. With a private limited company, the owners will hold all the shares. With a public limited company, some shares are made available for the public to buy. Either way, the shareholders’ liability is limited to their stake.

The alternative is not-for-profit limited companies, which are “limited by guarantee” rather than by shares.

Who can set up a limited company?

You can set up a limited company if you’re a sole trader or in a business partnership, regardless of whether the business has already launched or not.

Social enterprises, unincorporated associations and overseas companies can all be made into limited companies too.

How to set up a limited company

To set up a limited company, you’ll need to send an application to Companies House.

Here are the key steps involved with your application:

  • Choose and trademark your business name
  • Submit your business address
  • Choose your business type
  • Prepare and submit your Memorandum and Articles of Association documents
  • Submit the names of your directors and shareholders

Once you’ve set up your limited company, you’ll receive a certificate of incorporation, which confirms your company number and the date of formation.

How much does setting up a limited company cost?

It costs £12 to register your limited company with Companies House online or £40 by post.

It costs £170 to trademark your company name.

Is it worth setting up a limited company?

A key advantage of setting up a limited company is the limits to your liability. Indeed, if a limited company falls into serious debt, your creditors won’t be able to reclaim money from your personal accounts.

You may also pay less tax on your profits as the owner of a limited company, compared to what you’ll pay as a sole trader or as part of a business partnership. This isn’t always the case though. It’s worth getting advice from a tax specialist on this.

Another advantage of setting up a limited company is the ability to go public. When a lot of people want to buy them, the value of your shares – and therefore the value of your company – can skyrocket.

Pros and cons

Pros

  • You lessen your liability as a business owner
  • You may pay less tax on your business profits
  • You give yourself the option to sell shares to the public

Cons

  • There are a few fees involved with setting up a limited company

The bottom line

You don’t have to set up a limited company to succeed in business, but for most business owners, there are many advantages of doing so.

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