For a lot of people, the formation of a limited company represents the first steps towards being your own boss.
The formation of a company is a relatively straight-forward process. All companies require a name, shareholders, directors, a registered office and articles of association. Here we discuss the meaning of each and offer some practical tips.
Company Name
For many, the selection of a company name is the most difficult decision in forming a company. Some will use their own name, whilst others seek to avoid it; some try to describe what their business does, others make up a word.
The name can’t be sensitive, protected, offensive or suggest a connection to the UK government and must end with the word ‘Limited’. Likewise, the name cannot be the same (or similar to) another registered company. You can check if a name is available here: https://beta.companieshouse.gov.uk/company-name-availability
If your business is going to have an online presence, or any form public presence, we also suggest checking whether the domain name is available for the website including the .com and .co.uk variants, even if you don’t need a website immediately, this could save you a headache in the future.
Shareholders
Shareholders are the owners of a limited company. They provide the company with its initial funding, have the right to vote for or against decisions at and the right to appoint or remove directors to run the day-to-day operations of the company.
In return they are entitled to a say in how the company is run, distributions of profit in the form of dividends, and any residual assets in the event of winding up. In the event that the company becomes insolvent, the shareholders are lowest in the creditors hierarchy and would be paid last – their investment therefore carries more risk than providers of debt or preferential shareholders, however they will often get the greatest return.
Unlike an unincorporated business, should the company face difficult times, the liability of ordinary shareholders is limited to their investment in the business. For this reason, creditors will sometimes require a personal guarantee from shareholders if introducing debt to the company to afford them a level of protection over their money.
Directors
These are appointed by the shareholders of the company to oversee the day-to-day operations of the business. For the majority of small private companies, the directors and shareholders are the same people. The directors of a company are responsible for the filing of accounts and a confirmation statement to Companies House each year as well as updating them about other changes (such as changes to directors, registered office or a change in control of the company) when they happen.
Directors must show a ‘Service Address’ on the public register at Companies House. This can be their residential address or the registered office for the company (if they wish to keep their private address anonymous). If a separate service address is used, a residential address is required at Companies House but will not be available to the public.
Directors of limited companies must file a Self-Assessment Tax Return each year.
Registered office
This is the legal address of the company and will be published online at Companies House (therefore publicly available). For companies incorporated in England and Wales, the registered office must be in England or Wales; likewise, companies incorporated in Scotland must have a registered office in Scotland – companies cannot move from England or Wales to Scotland and vice versa.
For businesses that are run from home, often the owner of the business will not want this to be publicly available, or, if living in a rented property, may not have the freedom to use their residential address. Registered office addresses are offered by most accountants or company formation agents.
At Alchemy, or registered office service is £5+VAT per month. For this, we will scan and send on any important mail that is received and bin any junk mail.
Articles of Association
The articles of association are the company’s constitution and are a legally binding document on the company’s shareholders and directors. This document sets out the process by which company decisions must be made and how and conflicts should be resolved.
Companies House provide ‘model articles’, meaning that each incorporated company does not need to draw these up. Model articles are sufficient in all but the most complicated circumstances.
Corporation Tax
As a limited company you will be liable to corporation tax on profits made by the company. Shortly after incorporation, HMRC will issue form CT41G to the company’s registered office to register the company for corporation tax. Have a look at our Guide to Corporation Tax for more information about this.
Bank
As a limited company has its own legal personality, any funds owned by the company should be held in an account baring it’s name. If company funds are held by a director, this will be deemed a director’s loan and subject to taxes. We therefore recommend establishing a business bank account as soon as possible after the company has been incorporated.
For more information about your limited company, please get in touch with a member of the Alchemy Accountancy team on 01772 965550 or email hello@alchemyaccountancy.com.
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