A guide to forming a limited company or LLP
How to form a company
Incorporating a limited company or LLP is a very simple process. You complete an application form and filing fee, submit it for approval and start trading as soon as you like.
The quickest, easiest and most popular way to do it is to use the online services of a formation agent such as 1st Formations. As an approved Companies House eFiling partner, we are able to offer online company formation packages for private companies limited by shares or guarantee and Limited Liability Partnerships.
The whole process is carried out online, so you don’t have to sign or post anything - and the application form takes only a matter of minutes to complete. Companies are normally formed within 3 working hours, subject to the Registrar’s workload on that day.
You can also register with Companies House using their online or postal forms, but these methods take considerably longer - typically between 24 hours and 10 days.
To set up a company limited by shares, you will need:
- At least one shareholder and one director. (These roles can be filled by one person or multiple people and/or corporate bodies)
- A registered office address. (For receiving official correspondence from the Registrar and HMRC)
- A service address for each director
- An official name for your limited company or LLP (It cannot be identical, or very similar, to the name of another company)
- To issue at least one share per shareholder
To set up a company limited by guarantee, you will need:
- At least one director and guarantor
- A registered office
- A service address for each guarantor
- A unique company name
You will not have to issue any shares, but each guarantor will have to guarantee to contribute a certain amount of money toward business debts.
To set up an LLP, you will need:
- A minimum of two members (partners)
- A registered office address
- A service address for each member
- An official LLP name
You will receive your documents by email as soon as your company has been set up. These should be kept in a safe place, because you will need to refer to them on a number of occasions.
Choosing a name for your company
The company name cannot be the ‘same as’ or ‘too similar’ to a name that is already in use, and it cannot be offensive or misleading in any way.
1st Formations provides an online facility that you can use to check the availability of your desired company name. Simply type in the name you wish to use, and our advanced name-checker will let you know if it is available and permitted for use. If it is unavailable, amend and re-enter until you find a name you can use.
There are a number of words and expressions that are considered 'sensitive' if they are included in a company name. If you wish to register a name that contains any sensitive words or phrases, you will have to get permission from the Secretary of State at Companies House or the relevant regulatory body for the word you wish to use.
All company names must end with 'Limited' or ‘Ltd’, with the exception of some non-profit limited by guarantee companies. All LLP names must end with 'Limited Liability Partnership' or 'LLP'.
Private limited companies
A limited company is a business that has been incorporated with Companies House to exist as a distinct legal entity that is separate from its owners. A company can be limited by shares or limited by guarantee. The personal finances of the owners are protected by ‘limited liability’, which means they are not responsible for paying for business debts above and beyond what they have invested in the company or guaranteed to pay.
The most popular type of company is a private company limited by shares. They are owned by shareholders and set up with a view to generate profits that can be distributed amongst the owners. The liability of shareholders is limited to the value of their shares.
A private company limited by guarantee is a popular business structure for non-profit organisations and charities. They are owned by guarantors - there are no shareholders or shares. The liability of guarantors is limited to the amount they ‘guarantee’ to pay toward business debts.
Limited Liability Partnerships
A Limited Liability Partnership, or ‘LLP’, is a business structure somewhere in between a limited company and a traditional partnership setup. LLPs operate with the flexibility of a normal business partnership, but they are incorporated at Companies House as legal individuals. This means LLP members (partners) are protected by limited liability for debts because the LLP itself is responsible for its liabilities.
LLPs are popular business structure with professionals such as solicitors, accountants, doctors and dentists, because they can retain their preferred structure whilst protecting themselves with limited liability.
About Companies House
Companies House is the UK Registrar of Companies and an Executive Agency of the Department for Business, Innovation and Skills. As a registry of corporate information, Companies House is responsible for incorporating and dissolving companies, gathering and storing information about them and making this available to the public.
Any company or LLP that wishes to operate in the UK must be registered with Companies House in one of the following jurisdictions: England and Wales, Scotland or Northern Ireland. Companies House must be notified of any changes to a company’s details to ensure the accuracy of the corporate information disclosed on public record.
Limited company vs sole trader
A limited company differs from a sole trader business in a number of ways. By setting up a company, you can protect your personal finances from being used to cover any business debts – this is not possible when running a business as a sole trader, because there is no legal distinction between business finances and personal finances.
A limited company can also boost the status of your business and create a professional, corporate image. This is very appealing to prospective clients, suppliers and lenders.
Additionally, there are a number of tax advantages to running a business as a limited company. Sole traders pay Income Tax of varying rates on all business profits; limited companies pay corporation tax on business profits at a flat rate of 20%, although directors may have to pay Income Tax and National Insurance on their income if it exceeds a certain amount. Limited companies also present far greater tax planning opportunities than sole traders businesses.