The global business ecosystem has been forced to change dramatically over the last two years. Yet despite those challenges, 2022 is shaping up to be a bumper year for UK entrepreneurs.
According to Barclays Eagle Labs, 58% of start-ups are expecting to see a hike in turnover this year. Over half of businesses are expecting to have to hire new staff to meet growing demand, and small business transactions have risen by almost 40%.
That’s incredibly promising news for aspiring business owners. But before you dive in head-first and start trading, it’s worth considering setting up a limited company — and we’re going to explain why.
In this blog, we’ll explore why you should set up a limited company, the benefits of company formation, and how to set up a company online in a matter of minutes.
Why should you set up a company?
Before we walk you through the company formation process, let’s take a step back and talk about what company formation actually is.
Company formation is the process in which you register a business as a limited company through Companies House. Companies House is the UK Government’s official registrar of companies.
You can form a number of different company types.
These include private companies limited by shares companies, private companies limited by guarantee, public limited companies, and more. But because private limited by shares companies are by far the most popular limited company type, let’s focus on them for now.
When you incorporate (or form) a limited company, you’re turning your business into its own legal entity. This is incredibly important for business owners to do, because forming a limited company drives a legal wedge between you and your company. It effectively separates your finances, liabilities, contracts, and ownership of property or assets from that of the company.
After this split happens, you as a company owner are only liable for company debts up to the nominal value of the shares you own in the company.
Any amount of personal money you own exceeding that share value is legally protected. This protection is called ‘limited liability’ — and it protects all of your personal assets.
Company formation can also boost your professional image by demonstrating to potential clients and customers that you’re established and serious about doing business. People generally have more confidence in doing business with a limited company rather than a sole trader. So, company formation may ultimately help you to win trust and establish growth quicker.
Other benefits of a limited company over a sole trader setup include superior tax efficiency and ease of raising capital and attracting new investors.
How do you set up a limited company?
If you’d like to transform your business into a limited company, you’ll be delighted to know the company formation process is relatively straightforward. You can register a company online directly through Companies House, via post or use a company formation agent like 1st Formations.
The latter is definitely going to save you a lot of time and energy and we’ll explain why in just a minute. First, let’s break down the company formation process more generally.
Come up with a company name
The first step you’ll need to take is to come up with a name for your company.
There are a few rules you need to observe when coming up with a company name. But the golden rule is simple – you can’t have the same name as another limited company currently trading in the UK.
To learn more about some other essential name rules, check out this guide.
Choose a registered office address
Your company’s registered office address is its official location. It can be anywhere in your chosen jurisdiction (England and Wales, Scotland, or Northern Ireland).
There are a few basic rules, but the biggest is that it can’t be a PO Box. It’s also important to note your company’s registered office address will appear on the official UK company register – which is why most business owners tend to avoid putting down their home address.
To keep your home address private, 1st Formations offers a registered office address service that enables you to use our London HQ as your registered office address.
Appoint a company director
To form a company, you must name at least one company director. This is the person responsible for managing your company on a day-to-day basis.
Appoint a shareholder
To set up a limited company in the UK, you must appoint at least one shareholder.
Your shareholder and company director can be the same person, and you’re allowed to have as many shareholders as you want.
Memorandum and articles of association
Your memorandum and articles of association are the founding documents of your company.
There is no need to worry about creating these documents yourself as they are provided for you by Companies House and all formation agents during the company formation process.
It’s possible to write your own articles of association if your company structure demands it. However, most new companies use what are known as Model articles which are suitable for the vast majority of incorporations.
Issue share capital
To form a company, you must issue at least one share.
Generally speaking, we’d recommend you issue between 10 and 100 shares and keep their nominal value down to £1 each.
Choose a Standard Industrial Classification (SIC) code
A SIC code is a number the government uses to identify your company based on the sort of industry it operates in.
You’re allowed to choose up to four SIC codes, but you need at least one.
Using a company formation agent
OK, so let’s be honest: this is a lot of stuff to remember, and it can be quite daunting if you’re setting up a business for the first time.
This is where 1st Formations really comes to the rescue.
When you set up a limited company through 1st Formations, we strip the entire process back down to four simple steps:
- Choose your company name.
- Select one of our five limited company formation packages.
- Enter your company details.
With a company formation agent, the entire company formation process takes around five minutes to complete. After you’ve submitted your order, our experienced agents can look over your application before submitting it to Companies House for you.
Depending on the workload over at Companies House, your company can be officially set up in as little as three to six working hours. We’ll then send your documents to you, and you can start trading that same day. It’s that simple.
But this is just the tip of the iceberg. To learn more about the company formation process, consult the 1st Blog.
Alternatively, if you’re ready to take the hassle out of company formation and get down to business, check out our range of company formation packages and start trading today.