Setting up a Limited Company – 10 things you must think about

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Setting up a limited company in the UK is simple, especially if you use Inform Direct, but there are many facets that you should consider before you set it up.

Once you have a great idea for a company and want to get it up and running you should consider the elements in this list.

If you are ready to create the company, we’ve made it simple. Just select one of our packages, enter the company’s details, and it’ll be sent to Companies House for formation in a jiffy!

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1 Which type of company is right for you?

So, you’ve decided to start a limited company, but have you thought about the type of limited company that would best suit your business? Around 90% of companies formed each year are private companies limited by shares so this may well be the type that will suit your business, but there are other types:

Private company limited by guarantee – might be for you if:

  • You are forming a ‘not for profit’ venture.

Public limited company – might be for you if:

  • You plan to sell shares to the public.
  • You want the prestige of PLC in your company name, as PLCs need at least £50,000 paid up share capital, it makes any business seem more credible.

Limited liability partnership (LLP) – though technically not a ‘company’, might be for you if:

  • You are forming a ‘professional’ firm such as an accountancy or legal firm.

If you are not sure that a limited company is right for you, here are 10 advantages of setting up a limited company. There are also other popular business structures: sole traders, general partnerships and the much more uncommon unlimited company, that you may want to consider.

2 Do you have a good company name?

Your company’s name is very important. Getting it right can help tremendously in many ways, from giving you good traffic from search engines to brand recognition. Here are a few things to consider when picking a name:

Be aware that there are rules that can prohibit you from having a certain name:

  • If the name, or a similar name, is already in use by another company (unless you have their permission).
  • If the name contains certain sensitive words (i.e. swear words).
  • If the name contains a restricted word (e.g. King, Vet).

We discuss, in more detail, how to choose a great company name and some of the rules for names prohibited/restricted in the following blogs:

How to choose a great company name
What can’t be included in a company name

Please do take a look, as although you can change your company name in the future, it can be costly to update websites, stationery etc. so it’s best to get it right the first time!

3 Do you need a virtual office or address service?

There are many reasons to consider these address services, here we consider the main uses.

Virtual address service

What is it – This is an address that you can use as your company’s registered office address and directors service address. Any official mail (from Companies House, HMRC etc.) sent to this address, for your company, will be forwarded on to an address of your choice.

Why use one – If you do not have a business premises, then it is likely you are going to provide a residential address as the company’s registered office address, or a director’s service address. These addresses are available to the public in the register of companies, which can be found online at Companies House. It is likely that you do not want your residential address to be available to the public in this way, which is where a virtual address service would be required.

A company may also decide to use an address service for the prestige of an address in a certain location, such as London.

Virtual office service

What is it – This is an address that you can use as your trading address. All mail sent to this address for your company will be forwarded to you (either physically or electronically). Most virtual office services include a virtual address service as part of the package too, allowing use of the address as the registered office address and the service addresses for any of the directors of the company.

Why use one – Again, the most common reason for this is to avoid sending out your residential address to customers and suppliers. Some companies, again, use such a service for the prestige of a certain address, often London.

4 Do you need a business bank account?

Yes – Almost certainly. As a limited company is a legal entity in its own right, its finances must be segregated from any personal finances. So if your limited company will be using banking, it is a legal requirement that it has its own business bank account.

As a limited company, it’s allowed to not have a bank account at all, as is the case for dormant companies which are best off without a bank account.

If you’ve decided against a limited company, then you may not need one, but there are still benefits of having a business bank account.

5 What legal requirements will you have?

Your limited company is required to complete the following yearly company filings:

If your company is dormant these must still be filed, but if you have notified HMRC that your company is dormant (and they have confirmed this) the dormant company accounts need only be submitted to Companies House and not HMRC.

Provided your limited company will not be dormant from incorporation, then your company will also have the following legal requirements:

  • Any company offices, including the registered office address (and any SAIL addresses) and any correspondence and official documents must display the company’s full registered name.
  • The company’s business letterhead, order forms and websites must display the part of the UK the company is registered (i.e. England, Scotland etc.), the company’s registered number and registered office address.
  • The company must have employers liability insurance – unless you are the only employee and own over 50% of the company’s share capital.
  • Many health and safety requirements including having a health and safety policy and regular risk assessment (which must be documented if you employ 5 or more people) and providing all staff with appropriate health and safety information and training.

Depending on what your company’s activities are there may be other requirements, the most common being:

  • If you process or control personal data then you must comply with the General Data Protection Regulation (GDPR).
  • If you have a website it must display your VAT number (if you have one), a privacy notice and disclose any cookies used. E-commerce sites have more requirements too.

You may also want to consider some other insurances which, while not required by law, most business would consider and take out prior to trading, such as public liability, professional indemnity, product liability and more. Many insurance companies now offer insurance packages containing many of the above insurances, as most companies will take out a set of them from the outset.

6 Should you seek some investors?

It’s easy to think that if you do not need a financial investment in your business, that you do not need investors. Obviously if you do need capital that you can’t fully provide yourself to start your business, you’ll need investors or a loan. But investors can bring more than just money to your business.

Here are some reasons to look for investors:

  • To start your business you need more capital than you can commit.
  • To take advantage of an opportunity you need to increase your cashflow.
  • There are some skills that you need at the outset of your business that you do not possess that someone else can provide, for example someone experienced in sales and marketing.
  • There are ‘doors’ that a certain type of investor could ‘open’, such as introductions to customers, manufacturers, software developers etc. and maybe even discounts.

If you decide to take investment at the outset of your business there are many ways to do this. The most common ways are:

  • Friends and family.
  • Loan – bank loans or the increasingly popularity P2P loans.
  • Angel investors – generally entrepreneurs that look for ‘seed’ and ‘early stage’ businesses to invest in.
  • Venture capitalists – generally less likely to invest in a business at its inception.
  • Investment crowdfunding – a growing area for obtaining investment, with some great success stories – for example Syndicate Room, BrewDog.
  • Impact investors – investors looking to generate a social and/or environment impact, as well as a financial return.

Remember that you can seek investors at any point. A less established company is a bigger risk to a potential investor so they will either be less likely to invest, or want a ‘larger slice of the pie’, so only taking investment when you need it is usually beneficial.

7 Do you need a business plan?

Every business should have a plan, but this need not be a written plan, or even require the detail that a lot of business plan templates would suggest you write. There is no hard and fast rule on this, but the important thing for a business to be successful is that you have thought about the key elements that would be part of a business plan, most importantly:

1.Your company’s goals – are they financial, social, a personal interest.
2.What your core business product/service is.
3.Who your customers will be.
4.Why customers will purchase the product/service from you (and not your competition).
5.How you will get customers (sales and marketing).
6.What finances you need to survive (survival budget).

Despite what you may read, do not feel obliged to write a traditional (20+ page) business plan. Provided you have thought about the above and have a clear strategy for them, do what is right for you and your circumstances. Many businesses prosper every year without having a formal business plan.

That said, if you are looking for external investment in your business, be it from a bank, investors that you know or investors that you don’t, they will likely want to see a written business plan. Obviously, the better the business plan is the more likely you are to secure investment from them.

If you are writing a business plan there are many online resources available to help with this from business plan templates to examples for specific industries. They would usually be prefaced with an executive summary and ‘elevator pitch’ and include information on the following:

  • Owner’s background
  • Target market
  • Marketing strategy
  • Operations and logistics
  • Financial forecast
  • Products and services
  • Market research
  • Competitor analysis
  • Costs and pricing strategy
  • Back-up plan

Remember good businesses react to change, be it in the market place, competition or technology. Just because you have a business plan (written or not) do not feel like you must rigidly stick to it. It can, and should, evolve.

8 How are you going to do your accounts?

Filing your first accounts may seem like a long way off, but whether you are planning to do these yourself or hire an accountant, there are a few things that you will want to start recording from day one:

  • Receipts for all goods and services purchased, including any expenses being claimed.
  • Invoices for all goods and services sold.
  • Records of any cashflow in cashbooks and petty cash books.
  • Records of any business mileage.

Retrospectively trying to locate receipts and invoices can be very painful, so having a process for documenting and storing these from the ‘get-go’ will save you a lot of time later.

If you are going to use an accountant, appointing them as soon as possible will make sure that you are prepared to provide them all the information they require when the time comes to file your first company accounts.

9 How are you going to collect monies due?

Businesses can either collect monies at point of purchase (often product based companies), or after (usually service based companies).

Where collecting monies at point of purchase, be it in person or via a website, there are now many ways to do this – from online payment collection and traditional card terminals, to using a smartphone or tablet with contactless / a card reader attachment. There is often some setup required for all of these methods, so if you are planning on trading straight away you would be best to find the solution and provider you would like to use, and get the process kicked off i.e. getting the merchant bank account set up.

Where collecting monies after purchase you may be surprised to learn that you may have customers that do not pay (or pay in full). This can be because a customer refuses to pay, can’t pay or ignores requests to pay.

By requesting monies due, as soon as they are due, you are more likely to get paid in full. Therefore, having a process for invoicing and chasing payments and any software you intend to use ready, will help your initial cashflow and (hopefully) stop you stacking up bad and doubtful debts.

10 How are you going to set up your company?

Inform Direct makes this easy, not only will you have your submission sent to Companies House within minutes, but you will get the following key documents included:

  • Articles of association
  • First board minutes
  • Share certificates
  • Memorandum of association
  • Certificate of incorporation

You can simply add on extras that you need during the process too; such as a virtual office, company seal, or a free business bank account. There are packages available that offer savings on common sets of extras as well.

Once formed you will have access to our company secretarial software which will allow you to easily manage company details, officers, shareholders, share certificates, statutory registers and more!

When forming a company (since July 2017) you may need to complete some anti-money laundering checks. Within Inform Direct these are done in a straightforward online process. Just use your webcam or smartphone to take and send a picture of an identity document and a ‘selfie’, and the check will be performed online in a couple of minutes.

Forming a company has never been easier, our online formation process will take you though the process step by step.

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