For many people, they may start out as a freelancer or umbrella company contractor and then realise that they want to go onto bigger things by setting up their own limited company.
Limited Company Pros
A limited company contractor will be able to take advantage of more tax benefits compared to others, which is why this is the most tax efficient way of working.
Other pros include:
- Being able to claim back a much wider range of expenses, as long as they are wholly and exclusively for the running of your business.
- You will have more tax benefits, such as the Flat Rate scheme.
- You will have complete control.
- Your business will be seen as being completely separate to you with it’s own identity and bank account. This means that there isn’t as much risk as some people may think, as should your business face any genuine financial difficulty, you won’t be at risk of losing your personal possessions and assets.
Of course, with most things in life, there are some cons to being self-employed – for example, there will be a certain amount of paperwork involved, you will need to have some understanding of basic tax (although this can be easy to work through with an accountant) and there is a higher level of responsibility, compared to not only permanent workers, but other types of contractors too.
Where do I start?
So, you know what running a limited company involves and have made the exciting decision to go for it, what next?
Naming your company
It is important to come up with a name that sounds not only professional, but is related to your skill set or industry so that it’s easier for people to know what services you are offering (unless of course you plan to expand on the type of work you offer).
Other points to consider:
- Making sure the name isn’t already taken by another business (you can check this using the Companies House website)
- The majority of private limited companies must end in either ‘Limited’ or ‘Ltd’.
- The name cannot be offensive, have a ‘sensitive’ word or expression and it cannot suggest a connection with government or local authorities.
Directors, company secretary, shares and shareholders
A company must have at least one director and they will be legally responsible for running the company, making sure company accounts and reports are properly prepared and the company’s money is used wisely.
A company secretary is often there to help with some of the director’s responsibilities; however, you don’t have to appoint one.
You will have to have at least one shareholder within the company (who can also be a director) and if there is just the one, they will own 100% of the company.
There is no maximum number of shareholders and the price of an individual share can be any value, but each person will need to be paid their shares in full if the company has to shut down.
Register your company
Once you have come up with a name and decided on directors, shareholders etc. you will need to register your business with Companies House.
This comes with a small fee and could take around 48 hours to set up. You will also need to have the following information at hand to complete registering your company:
- The company’s name and address
- The names and addresses of directors, company secretary and shareholders.
When you register, you will need to arrange:
- A ‘memorandum of association’, which is a legal statement signed by all initial shareholders agreeing to form the company.
- An ‘articles of association’, which is a set of written rules about running the company agreed by the shareholders, directors and the company secretary.