Helpful FAQs: Do’s and don’ts when forming a limited company
Thinking of forming a limited company but don’t know where to start? You aren’t the only one.
Our team of experts have compiled a handy list of commonly-asked questions about anything and everything you need to know – including what your obligations are, how to change your details and what you need to pay. Don’t say we don’t look after you.
Q: What options are there if I decide to form a business?
There are four ways you can set yourself up if you are thinking of starting your own business: as self-employed, in a partnership, as a limited company or in a limited liability partnership (LLP).
Each has its pros and cons so I’d consult a chartered accountant for some tailored advice. Briefly though, this might just whet your appetite:-
- Self-employed (sole trader): You are your own boss. There are no requirements to submit accounts to Companies House but you will need to submit a tax return to HMRC. Business accounts are not as strictly defined as they are for companies. However, you are personally liable for any debts to creditors: they can come after you personally.
- Partnership: Similar to a sole-trader except there is more than one person involved. There is no obligation to submit accounts to Companies House, however each partner will need to submit a tax return to HMRC – in addition to a tax return for the whole partnership. Partners are jointly and severally liable for any debts. This means they can be pursued jointly or individually for payment.
- Limited Company: See below.
- LLP: A hybrid combining elements of the partnership and limited company. Accounts need to be submitted to Companies House and HMRC need to receive an overall tax return as well as individual tax returns for each partner. Unlike a partnership, the partner’s liability is limited to their capital contribution (the money they put in the business). You can’t be sued for any more than this.
Q: How do I set up a company?
There are three ways to set up a company. They are: through the Companies House website, by using a formation agent or by submitting paper forms to Companies House.
Unless you require an unusual share structure or complex company rules, the first and second options are easiest.
For a more specialised set-up – eg complex shareholder agreements – we’d recommend you consult a solicitor to ensure the rules by which the company is governed are compliant and legally enforceable.
Q: How much does it cost?
Companies House charge a formation fee of £15. Formation agents will charge anywhere upwards of £12, depending on the complexity of the structure and other fees.
Q: I’ve formed a new company and I’ve received some documents – what are they?
Good question. When you form a company, you receive three documents – (i) the Incorporation Certificate,(ii) the Memorandum & Articles of Association (known as the Articles), and (iii) the Share Certificate(s).
The Incorporation Certificate – this is a licence from the government that allows you to form a company. It shows all the details of the company – the registered office and the company registration number. This document is required by banks when you apply to open a company bank account.
The Articles – these are the rules by which the company is governed. They outline what kind of business will be carried out and the responsibilities of the directors. Companies House provide pro-forma Articles that are suitable for most purposes.
The Share Certificate(s) – these give the details of the shareholding of the company at the time.
You will also receive a code, called the Companies House Authentication Code. This is used to submit the statutory documents to Companies House via their web-filing system. Think of it as an early / late Christmas present – depending on the time of year.
Q: Hang on a minute… statutory documents, web-filing? What do I need to do?
Company directors need to ensure their company submits the necessary statutory documents. You are required to do the following:
- Submit an Annual Return to Companies House each year. This updates their records to reflect the current shareholdings, directorships and business sector and there is a £13 charge to submit this.
- Submit Annual Accounts to Companies House each year. You have nine months after the end of the accounting period to submit the prepared accounts to Companies House.
- Submit the Corporation Tax Return to HMRC annually. You have 12 months after the end of the accounting period to prepare and submit the return to HMRC. If the company is non-trading or ‘dormant’, HMRC should be informed and nothing needs to be submitted.
Q: How do I change company details?
Most changes to the company – such as change of address – are free of charge and can be done easily via the web-filing service, as mentioned earlier.
For some changes however, Companies House require a fee. For example, to update the shareholding an annual return must be submitted. This will cost you £13. To change the company name the application can be submitted online, with a fee of £8.
Alternatively, all changes to the company can be done using the paper forms, found here.
If you are the sole director and shareholder, making changes is straightforward. However, if there is more than one person assigned as a director, some changes will require majority approval.
Q: I’ve decided to close up the company – how do I do it?
To close a company (also known as winding up or striking off), certain criteria need to be met:
- The company must not have traded for the previous three months
- The company must not have changed its name within the last three months
- The company must not be subject to any legal proceedings, current or proposed
Once you’ve determined that you want to – and can – strike the company off, you need to complete a form and send it to Companies House with a cheque for £10.
Once this has been processed, Companies House lists the company in the London Gazette for three months.
This gives any creditors (people the company owe money to – such as HMRC) the opportunity to object to the dissolution of the company. If no objections arise, the company will be struck off as planned.
There’s a lot to take in but we hope this helps. As always if you have any questions or need any advice you can call us on 020 7488 3614 for a free no-obligation chat.