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How to set up a Limited Company  

Aside from using an Umbrella Company, most IT Contractors set up as Limited Companies. The term 'limited' derives from the fact that the company's finances are distinct from the personal finances of their owners (unlike the sole trader arrangement).

Shareholders in limited liability companies are not responsible for company debts, although if required, directors may be required to guarantee loans or credit granted to the company.

The higher level requirements for limited liability companies are as follows:

  • Company must be registered at Companies House
  • Annual accounts must be filed at Companies House
  • Annual Return must be completed each year to update Companies House with basic details relating to the company. Also requires a small annual fee.
  • The Inland Revenue must be informed if the Company has any profits or taxable income in a Company year.
  • Company must complete an annual Inland Revenue corporation tax return and pay the due taxes within nine months of the Company year end each year.
  • Anyone employed by the Company must pay income tax and national insurance on their income.
Set up a Limited Company - Incorporation Process

Companies House is responsible for company registration in Great Britain. It also has a key role in providing information about British companies. Before a business can set up as a limited company (or become 'incorporated'), it must be registered with Companies House.

The following documents must be completed by you (or quite commonly, an intermediary) and returned to Companies House to complete the Incorporation Process:

1) Memorandum of Association - Includes Company Name, Location and Type of Business

2) Articles of Association - Outlines Directors' powers, shareholder rights, etc.

3) Form 10 - Provides Directors' and Company Secretary's Names & Addresses, together with the Registered Company Address.

4) Form 12 - States that the Company complies with the terms of the Companies Act

These documents are often prepared by private sector formation agents (or your contractor accountant), but there is no requirement in law to use an agent.

The Companies House website provides detailed guidance and FAQ's which descibe all aspects and requirements of the registration process, including what you can call your limited company, and the documentation required to compelete the registration process.

Set up a Limited Company - Types of Legal Structure

Private Limited Companies, the most typical setup for IT Contractors cannot offer shares to the public, but may have any number of shareholders. Each Private Limited Company must have at least one director to make management decisions and a company secretary.

PLC's (public limited companies) differ from Private Limited Companies in that they are allowed to offer shares to the public to raise funds (with shares issued to a minimum value of £50,000). Each PLC must have at least two directors to make management decisions and a company secretary. Contractors are unlikely to need to set up a PLC.

You can set up a Limited Company online right now via our partner, Duport.

Article provided by our sister site, Bytestart - the Small Business Portal.


Published on Feb 15, 2007


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