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Guide to setting up a limited company
Posted Sep 25, 2011
You can set up a limited company right away via our formations partner, Duport
What is a limited company?
Aside from using an umbrella company, most IT contractors set up as limited companies.
As the term would suggest, the financial liability of limited company directors is limited - their personal finances are separate (unlike the sole trader arrangement).
For a number of reasons, it is very unusual for contractors to set up as sole traders.
Although the shareholders in limited liability companies are not responsible for company debts, on occasion, directors may be required to guarantee loans or credit granted to the company.
Legal requirements of limited companies
Theses are the high level legal requirements of all ltd companies:
- Annual accounts must be filed at Companies House.
- The company must be registered at Companies House.
- Annual Return (Form AR01) must be completed each year to update Companies House with basic details relating to the company. The form must be submitted within 28 days of your company 'made up date' each year. A small annual fee applies.
- You must let HMRC know if the company has any profits or taxable income in any given company year.
- The company must complete an annual HMRC corporation tax return and pay the due taxes within nine months and one day of the company year end.
- Anyone employed by the company must pay income tax and national insurance on their income.
- A limited company no longer has to have a company secretary following changes contained in Companies Act 2006.
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.
You must complete the following documents, and return then to Companies House to complete the incorporation process:
1) Memorandum of Association (company name, company location and business type).
2) Articles of Association (this document outlines the company directors' powers, and shareholder rights, etc.)
3) Form IN01 (contains details of the company officers, company registered office, details of subscribers and share capital).
Although you can form a company directly via Companies House, many contractors prefer to incorporate via a company formation agent, or an accountant.
You are not obliged to use a formations agent to set up your company, but such services are very competitively priced, and this is certainly the hassle-free route.
The Companies House website contains a range of guides and FAQs which describe the incorporation process in full.
What types of limited company are there?
LTD (Limited Liability Companies) are frequently used by contractors and freelancers. Ltd companies can't offer shares to the public, and must have at least one director.
The company secretary is now an optional appointment following the implementation of the Companies Act 2006.
PLC (Public Limited Companies) can offer shares to the public in order to raise funds. Shares can be issued to a minimum value of £50,000. A PLC must appoint at least two directors.
IT contractors are highly unlikely to need to set up a PLC, for obvious reasons.
Form a limited company - the next step
Most contractor accountants will happily set up a company on your behalf (sometimes at no extra cost if you sign up to use their services). Try our select list of contractor accountants as a useful starting point.
You can also set up a limited company online right now via our long-term formations partner, Duport.
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