10 crucial considerations when you set up a limited company

Whilst setting up a company can be an exciting time, there is a lot to consider. From choosing a business structure to understanding your legal obligations, new business owners can face a bit of a learning curve. Let’s dive into some key things to keep in mind as you set up a limited company.​

When it comes to new businesses, most choose to trade either as a sole trader or a limited company. To help you make an informed decision, we've prepared a guide outlining the differences between the two, as well as guidance on choosing the most suitable business structure.​

However, the key thing to know is whist a limited company structure offers you more protection and less liability, there are also greater compliance requirements and responsibilities. Read more on advantages and disadvantages of a private limited company.​

Your company's legal name is the one you register with Companies House. However, it doesn’t need to be the name your company ‘trades’ under.​

There are also specific rules to follow when it comes to company names. For instance, it cannot be identical (or too similar) to an unrelated company, and it cannot include sensitive, abusive, offensive, or illegal words or phrases. It also needs to end in "Limited" or "Ltd."​

‘Limited by shares’ means your company consists of shareholders who invest and own shares. Meanwhile, ‘limited by guarantee’ means you guarantee to cover the company's obligations, rather than invest from the start. If you intend to make a profit that you can benefit from, ‘limited by shares’ is likely the best option. Alternatively, if you're establishing a non-profit organisation, such as a social club or charity, ‘limited by guarantee’ could be more suitable.​

As you set up a limited company, you’ll face several options. A key one is whether you’ll operate with directors, shareholders, or both. Shareholders are the owners of the company and earn money through dividends. Directors manage the business and usually receive a salary. You can be both a director and a shareholder, or choose to be one or the other - all options are on the table.​

Additionally, consider how your share structure can be tailored to improve tax efficiency. For instance, the use of alphabet shares allows for greater flexibility in declaring dividends. Alphabet shares (e.g. A shares, B shares) enable you to allocate different dividend amounts to different shareholders, which can be particularly useful for achieving greater tax efficiency within your company.​

When setting up as a limited company, you are required to register with Companies House. The registration fee is £50, and the process normally takes around 24 hours. During this process, you'll need to provide information such as your company name, details of any directors and shareholders, and your SIC code.​

The UK Standard Industrial Classification of economic activities (SIC) categorises the type of economic activity your company engages in. You can find a comprehensive list of SIC codes on the Companies House website. Once registered, you'll receive a Certificate of Incorporation, which is a vital document confirming your company's legal existence. Keep this safe!​

Within three months of starting to trade, you’ll need to register your company for corporation tax with HMRC. However, if you intend to start trading within three months of registering with Companies House, you can register for corporation tax with HMRC at the same time as you register with Companies House. ​

You'll also need to register for VAT, and start filing VAT returns, once you reach the VAT threshold of £90,000. While registering for VAT might not be vital right away,  it's really important to keep it on your radar and make sure you're ready as soon as you reach the threshold. You can read more on how and when to register for VAT here.​

Lastly, if you employ staff, or wish to draw a salary as a director, you must register for PAYE with HMRC. Once registered, you'll need to run a payroll and make Real Time Information filings.​

Setting up as a limited company? You’ll quickly need a new bank account! A limited company is a distinct legal entity separate from yourself, even if you're the owner and operator. You will need a company bank account separate from any private use. All your company’s income and expenditures should go through this account.​

Read more: Do I need a business bank account?​

An incredibly important component of your limited company set up will be the software you use. Accounting software such as Xero or QuickBooks offers many benefits. For instance, it can provide a clear overview of your business's performance and identify which products (or services) are thriving, and which may need some extra love. ​

It’s also an excellent way to keep reliable records of your financial data. This is important, as it’s a legal requirement for companies to keep records for at least six years. With accounting software, you can rest easy knowing all your records are neatly organised in one place.​

If you become VAT registered, you need to file your VAT returns through Making-Tax-Digital compliance software (such as Xero). Furthermore, if you want to reclaim VAT on your purchases, having a VAT invoice or receipt for each claim is essential. We have an article on understanding making tax digital by HMRC.​

Good accounting software will often allow you to upload invoices and receipts directly to your transactions. This way you can quickly and easily locate the required invoices and receipts for the HMRC in the event of a compliance check. ​

For more information check out our article on 7 ways to enrich your business with Xero accounting software.​

Writing a business plan helps to scrutinise the finer details of your ideas. Know your market, conduct thorough research, and craft a comprehensive plan for achieving your goals. This step is critical, as by doing so you will gain insight into how you'll deliver your new product or service to customers whilst avoiding any pitfalls!​

Creating a budget helps you keep track of your expenditures and identify any potential overspending early on. Accounting software can, again, come in handy here as you can monitor revenue and spend against a set budget. You’ll likely need to revise and refine your budget as you go.​

There's a lot to wrap your head around as you set up a limited company. If this is your first time, we strongly recommend seeking assistance from a professional, such as an accountant. They can help with all the topics discussed in this article, and make sure you're compliant right from the start.​

Read more: What is a budget?​

We’re an online accounting firm that is always right here for you, your accounting pain relief. The most advanced technology lets us work way more closely with you than a normal accountant would. ​

We have a dedicated team of certified accountants and a support team to take care of your business no matter where you are, so you can focus on growing your business. We take out the ‘fluff’, break down the barriers and get things done. Looking out for you is what we are all about. Register today.​