Limited company formation: how to set one up

How to set up your own limited company

Setting up a private company limited by shares means choosing a name, giving a registered office address and email address, appointing a director, choosing at least one shareholder and registering the company with Companies House. Online registration costs £100 and the company is usually registered within 24 hours. ^[1]

Whether the company needs accounting support for your business once it is running depends on the owner's own skills, time and the work the company does.

What do you need to decide before registering?

You must provide a registered office address and email address when you set up a limited company. These are two of the first details the registration asks for.

A director must be 16 or over. A company limited by shares must have at least one shareholder, who can be a director. A company can have one shareholder who owns the whole company and acts as its only director.

You do not need a company secretary for a private limited company. Some companies use one to take on some of the directors' responsibilities, but the directors stay legally responsible for the company.

What does limited liability mean for the owners?

A limited company is legally separate from the people who own it. Owners are responsible for business debts only up to the value of their financial investment.

Most companies are limited by shares. Most companies limited by shares are set up with one class of share, which is normally ordinary. A company that issues 500 shares at £1 each has a share capital of £500.

You can choose a low share value, for example £1, to limit the shareholders' liability to a reasonable amount. A shareholder who owns more than 25% of shares or voting rights in a company is classed as a person with significant control (PSC).

How does naming the company work?

You must choose a name for your business if you're setting up a private limited company. The name is part of the registration, so it helps to settle it before starting.

Some words need permission. To use ‘Accredited’ in your company’s name, you need permission from the Department for Business, Innovation, Science and Trade (BIST).

A trade mark can matter too. If your business name is too similar to another company’s trade mark you may have to change it if someone makes a complaint. The official guidance on naming a company explains which words need permission if you are not sure.

How do I pay myself from a limited company?

How you take money out of the company depends on what it’s for and how much you take out. ^[2] The main routes are salary, expenses and benefits, dividends, and directors' loans.

If you want the company to pay you or anyone else a salary, expenses or benefits, you must register the company as an employer. Dividends are paid to shareholders from profit, and your company must not pay out more in dividends than its available profits from current and previous financial years.

If you take more money out of a company than you’ve put in - and it’s not salary or dividend - it’s called a ‘directors’ loan’. The guide to paying yourself from a limited company covers each route in more detail.

Any salary, expenses or benefits mean the company must be registered as an employer, and shareholders may have to pay Income Tax on dividends if they are over £500.

What records, accounts and tax come with a limited company?

There must be a clear division between the company’s finances and those of the owners and directors. A separate business bank account is the simplest way to keep them apart.

The company needs to file a Company Tax Return, even if it makes a loss or has no Corporation Tax to pay. Directors can hire other people to help, such as an accountant, but they are still legally responsible for the company's records, accounts and performance.

Preparing and filing annual accounts is covered on the page on how to prepare and file company accounts. The guide to input VAT and output VAT covers how VAT owed or repaid is worked out, and the guide to the VAT cash accounting scheme covers that scheme.