Limited Company Formation

A limited company is a legal entity in its own right. It is separate from the people who run it. Therefore, a limited company has separate finances. This means the directors and shareholders will not be personally liable for any financial losses made by the company, providing no fraud has been committed. However, shareholders are responsible for the amount they have invested in the business. That’s why a limited company is also referred to as a limited liability company.

In the UK, all limited companies are governed by the Companies Act 2006. Limited Liability Partnerships are also governed by the LLP Act 2000. All company registrations and records are managed by Companies House, the official registrar acting on behalf of the UK government.

• Private company limited by shares (LTD) – This is the most popular option for many freelancers and contractors. The company is divided into shares which are allocated to shareholders. If you are a freelancer, then you have the option of owning the sole 100% share of the company. Shares in private limited companies cannot be sold on the public markets. However, share values will still increase and fall depending on how the company performs. My Accountant Friend is an example of a private company limited by shares.
• Private company limited by guarantee (LBG) – This is a common choice for non-profit organisations. This company structure does not have any shares or shareholders. Instead, the company is owned by guarantors. The company guarantors usually do not receive profits which are typically re-invested back into the company to help achieve its objectives. WaterAid is an example of a private company limited by guarantee.
• Limited liability partnership (LLP) – LLPs limit the liability of the partners, unlike traditional partnerships where the responsibility of financial debts lay entirely with each partner. However, a limited liability partnership still shares the same characteristics as traditional partnership structures such as the distribution of profits, internal management processes and tax liability. This is structure is a common choice for law and dental practices and other similar businesses.
• Public limited company (PLC) – This type of company has many similarities to private companies limited by shares. The main difference is that members of the public can purchase PLC shares making them shareholders. Because of this, there are a lot more legal requirements involved when setting up a PLC. The Royal Bank of Scotland (RBS) is an example of a public limited company.

To form a private company limited by shares you require:

• A company name that does not already exist or conflict with a registered trademark
• A company address, many opt to use our registered office services
• A minimum of one director
• Details of the company shares and one shareholder
• A SIC code which classifies the nature of your business
• Details of people with significant control (PSC) over the company such as anyone with more than 25% shares or voting rights

You will also require a written document from all shareholders agreeing to form the company and the company rules. This is known as a ‘memorandum and articles of association’.

You can form a limited company online. However, if you have never set one up before, it’s important you educate yourself on the different stages of the process. This will ensure you avoid making errors which could impact your business later on.

Contractors and freelancers use My Accountant Friend to form their limited companies because it saves them the time required to research one of the most important stages of their entrepreneurial career.

Our accountants are small business experts and can guide you through the process making it a doddle. In fact, your company could be up and running in 30 minutes! All you have to do is fill out the form above. Contact us if you have any questions or If you want to set up a company with more than one director/shareholder.

Your choice of company structure will be dependent on the nature of your business. However, a private company limited by shares is a popular choice for freelancers and contractors for the following reasons:

• Limited liability – If the company undergoes formal liquidation, your personal assets cannot be touched so long as no fraud has been committed.
• Tax efficiency – Company taxation rules set by HMRC means that you can pay less tax compared to sole traders. For example, as a director, you may decide to pay yourself mostly in dividends thus minimising the amount of National Insurance Contributions you have to pay. Remember, you can submit the cost of setting up a limited company as an expense.
• Separate entity – Because the company is a legal entity and split into shares, it’s easier to transfer ownership or sell shares. It’s also easier for limited companies to raise capital by issuing shares.
• Funding options – Because the company is a separate legal entity, you may be able to borrow money without a personal guarantee from the director(s). Limited companies are generally perceived as more credible than sole trader by lenders.
• More professional – You may find certain companies or businesses, particularly large corporations, will only deal with limited companies rather than sole traders.