Forming a Limited Liability Company in 4 Simple Steps
One of the smartest and most tax-efficient ways to get paid for your work is to form a limited company.
You can define your brand, own everything you do, run your business in the most tax-efficient way, and pitch for work that you wouldn't be able to get as a sole trader.
If you're not sure what it all means, read our limited company beginners guide. Then, using our simple Crunch Formations service, you can form a company.
Here's what you need to know if you want to learn how to form a limited company.
No worries if you don't have time to read this right now. Our jargon-free PDF guide will teach you everything you need to know about forming a limited company.
In four simple steps, learn how to form a limited company.
1. Determine the type of limited company to establish.
Once you've decided to form a limited company, you must decide which type you want. The two primary options are:
- Private Limited Liability Companies (LTDs)
- PLCs (Public Limited Companies)
Because PLCs must have a minimum share capital of £50,000, at least two shareholders, two directors, and a qualified company secretary, most freelancers, contractors, start-ups, and small businesses will choose a Private Limited Company.
LTDs have no minimum share capital requirement. If you want, you can start a LTD with a single £1 share.
2. Choose a name for your company.
For most new limited companies, this is both the most enjoyable and the most frustrating part of the process. Your company name, like a web address, must be completely unique. To ensure a unique name, you can differentiate in a few ways; for example, a limited company name can use either "Limited" or "Ltd." ” (i e "Crunch Ltd." or "Crunch Limited" ”) Our Crunch Formations company name checker can help you find available company names, but with over 1,500 companies formed every day, your preferred name might not be available.
I'm at a loss for ideas. Here are some ideas for making unique company names.
3. Establishing a limited liability company
If step two was the exciting and frustrating part, this one appears to be the difficult and bureaucratic part. If you're organized, it's actually quite simple. Crunch allows you to go online and set up your own limited company in about ten minutes, all for the price of a takeaway pizza.
You only need to provide a few personal details to help Companies House identify you as a company director. These are some examples:
- By submitting a SIC code (Standard Industrial Classification code), you can inform them about the type of business your limited company will conduct. You can choose the most appropriate code from the Condensed SIC code list maintained by Companies House online at Gov.uk.
- Determine which addresses you want to register for your company. You must select a Registered Office Address and provide a service address. We've written a separate article about the different types of addresses you must provide to Companies House and how to avoid potential privacy issues by not disclosing your home address.
- Determine your company's ownership structure: how many shareholders do you want and how many shares will each have (known as their shareholding)? This is explained in our article, 'What are company shares, share value, and share capital?
You're ready to go once you've completed this step. Companies House will frequently form your limited company in a matter of hours.
4. Finish the incorporation process
Companies House is in charge of all limited company registration in the United Kingdom. Their website has detailed instructions on how to proceed, or you can use a service like our Crunch Formations to make things easier.
To finish the incorporation process, the following documents must be completed and returned to Companies House. These are frequently completed on your behalf by your company formation agent or accountant:
- Memorandum of Association - a brief description of the company's name, location, and business type.
- Form 10 - names, addresses, and registered limited company address of directors
- (This does not have to be where you work, but it is where HMRC and Companies House will send legal correspondence.)
- Form 12 - certifies that the limited company abides by the terms and conditions of the Companies Act.
- Articles of Association - outlines the powers of directors, shareholder rights, and so on. (This is frequently provided by the company that establishes the limited company.)
And that is how a limited company is formed. What should you do next?
There are a few more bits of admin to take care of, as well as those pesky reporting and filing responsibilities to keep track of.
First and foremost, you will require a business bank account for your limited company. We've put together a helpful guide on what to look for in a good business bank account.
You'll also need some small business insurance to protect yourself and your company from any work you do.
Download and save our useful Business Insurance guide.
Obtain a Free PDF Guide
How much does it cost to form a limited company?
It costs £10 to register a limited company, or it is completely free if you sign up for accounting with Crunch. We'll even refund your fee if you take out our Small Business Insurance or open a Barclays business bank account through us.
We have assisted in the formation of over 10,000 limited liability companies. Crunch Formations allows you to set up your limited company in just a few minutes.
Your responsibilities and duties as a limited company director
We've written a comprehensive article outlining your responsibilities as a limited company director, what you must file, and when the deadlines are. However, as a limited company director, you have specific duties and legal responsibilities. These are some examples:
- Companies House must be notified of your newly formed limited company.
- Every year, annual accounts and confirmation statements must be completed and filed with Companies House by the deadline.
- You must keep and submit a record of everyone who has significant control over the limited company. A person of significant control is someone who owns more than 25% of a company's stock or voting rights, has the authority to appoint or remove the majority of the board of directors, or otherwise wields significant influence or control. This is referred to as the PSC register.
- Every year, HMRC must receive your accounts.
- An annual return must be filed, and any Corporation Tax owed to HMRC must be paid within nine months and one day of the limited company's fiscal year end.
- Every year, you must register for Self Assessment and submit a personal tax return to HMRC (this requirement does not apply if your company is a non-profit organization, such as a charity, and you did not receive any pay or benefits).
- Follow the guidelines outlined in the company's articles of incorporation.
- Maintain company records and report any changes.
- Inform other shareholders if you believe you will benefit personally from a transaction made by the company.
You may delegate some of these responsibilities to others (for example, an accountant), but you are still legally responsible for your company's records, accounts, and performance. If you do not meet your responsibilities as a director, you may be fined, prosecuted, or disqualified.
Persons under the age of 16, bankrupts, and disqualified individuals are all prohibited from serving as directors of a company. While there are no mandatory qualifications for becoming a director, a director must be able to perform the duties outlined above.
As a director, you must make decisions that benefit the company rather than yourself. This may appear perplexing if you are the sole shareholder, employee, and director, but a decision that benefits you personally may have a negative impact on the company's performance.
But isn't it difficult to be a director of a limited company?
The short answer is that it shouldn't be.
Being a sole trader has traditionally been thought to be the simplest option for running a small business. As a sole proprietor, your tax obligations are straightforward, if not always as efficient as they could be. However, many of our clients have reaped the benefits of shifting from a sole proprietorship to a limited company business structure.
It does not seem right for a freelancer, contractor, or small business owner to be put off saving tax due to the perceived hassle involved.
The key to doing it correctly
As a freelancer, contractor, or small business owner, it's critical to have the systems in place to take advantage of the tax advantages of a limited company without having to spend hours on tedious administrative tasks. You should also not have to pay exorbitant accounting fees.
When your accountant does the majority of the work for you and leaves you with more take-home pay, you've found the right accounting solution. Being a limited company director should be a breeze, and Crunch makes it so.
Developing a business plan
Writing a business plan can help you determine whether your business idea has legs.
You can use your business plan to convince potential sources of finance, investors, partners, and employees that you've done the market research and know how you're going to provide the service to customers who are sold on the basics.
Our jargon-free guide How to Write a Business Plan will help you understand how to get started.
Keeping your small business alive
There are numerous horror stories of freelancers or contractors who have had a nightmare with running a limited company, either due to accountants who abandoned them or a clumsy attempt at DIY accounting.
One of the most important functions of a good accounting service is to ensure that you spend as little time as possible on your accounting. Our service at Crunch combines online accounting software with expert accounting advice, so you can get everything you need in one place.
The mainstay of running a limited company is creating and sending invoices, as well as keeping track of expenses. Both of these are simple to accomplish if you use online accounting software that provides templates, automatically calculates VAT (if you are VAT registered), and allows for simple expense recording. These are the same processes you were used to as a sole trader, but now you must ensure that you stay on top of them in order to understand how your business is performing and how much dividends you can take.
Tax return preparation and filing
Our article "Limited company directors: What you need to file with HMRC & Companies House" explains your tax obligations and filing deadlines. What's important to remember is how important it is to have a good accountant and sophisticated online accounting software (Crunch provides both) to alleviate the stress.
For example, with Annual Accounts, you don't have to do anything - the accountants on our end will handle everything, leaving you to simply approve your accounts. Annual accounts are available with the click of a button.
VAT is simple if you're registered because it's automatically added when you create an invoice. When it comes to actual VAT returns, the Crunch system will calculate them for you, and you can file them directly from your Crunch account each quarter.
When business owners keep all of their information in different places, it can be difficult to manage your tax payments and filing duties. However, when everything is organized in a single secure online system, the information is easily accessible, making it much easier to file returns and accounts for taxes. If there are any issues, our team of expert accountants is here to assist.
Obtaining reimbursement for pre-trading expenses from your limited company
It is entirely possible that you incurred business expenses prior to the formation of your limited company. You can deduct 'pre-trading' expenses such as:
- Computer hardware and software
- Registration of a domain name
- Rent for an office space
- Business insurance
- Accounting fees
- Travel expenses
Just remember that the expenses have to have been solely for business and not personal use – we’ve written a jargon-free guide to help you figure out exactly what you can claim and how. You’ll also need your receipts and proof of purchase as well, as you would for any company trading expense Remember that any training expenses incurred prior to incorporation are not deductible, nor are preliminary activities such as writing a business plan or negotiating contracts.
There is one more piece of good news. You may deduct any expenses incurred within seven years of the formation of your company. When running a business, keep every receipt or invoice and file it - they'll always come in handy.
Who has access to my company's information?
This is a frequently asked question when forming a limited company, and the short answer is: anyone. Companies House makes your company information available to anyone via their website once it is formed.
Anyone can search the Companies House Register, and if you know a company's name (not its trading name) or company number, you can look them up and request information.
What information is currently available? A prospective nosy parker will be able to view past accounts, annual returns, as well as information about company directors, officers, share allotment, and Persons of Significant Control.
To give yourself more privacy, you may want to consider using the address of your accountant, formation agent, or a registered office service for your official Registered Office; Crunch can provide this service. We can also provide a Service Address through our partners Hoxton Mix.
Hire an accountant.
We'd say it, wouldn't we? Hiring an accountant is an excellent way to stay on top of your finances. They will remind you of important tax dates and payments due, show you how to keep your accounts in good shape, and advise you on allowable expenses and how to report them so that you are as tax efficient as possible.
They can assist you in calculating how much tax and NI you'll need to pay every six months or quarterly for VAT. They'll also help you avoid forgetting a payment on account, which happens to a lot of people every year.
Learn more about Crunch's limited company accounting service.
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