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Deciding to launch your own business is one of life’s most exciting and positive events. According to the January 2021 Business Statistics Briefing Paper from the House of Commons Library, in 2020 there were six million businesses in the UK - 112,700 more than in 2019. If you have decided that 2022 is the year to launch your venture, keep reading to find out how to form a limited company, one of the UK’s most common legal business structures.

What are the advantages of a limited company?

The advantages of forming a limited company include:

  • shares of the company can be sold to third parties, making it easy to attract investment and scale-up
  • corporation tax applies which is currently 19%, lower than the income tax rate
  • a Shareholder Agreement can set out how the company will be run, the payment of dividends, and how disputes will be resolved
  • it can be easier to establish a strong brand as the company can apply for trademarks and patents

How do I form a limited company?

Forming a limited company in the UK is relatively simple. You need to register the company by filing the necessary documents and paying the required fee at Companies House. The company is ‘born’ when the Registrar of Companies issues the Certificate of Incorporation.

Before starting the registration procedure there are several things you need to consider. You may find it helpful to talk through the below points with a Company Law Solicitor who can advise you if you have any questions.

Types of limited company

There are three types of limited company, a) a company limited by shares, b) a company limited by guarantee, and c) an unlimited company. The most common option is a company limited by shares which can be either a private or public company.

A private limited liability company is a completely separate entity from its founders. This means it can enter into contracts, buy property, and take on debt in its own name.  A company is owned by shareholders whose liability is limited.

A company limited by guarantee is normally formed for non-profit activities. Its members undertake to contribute a nominal sum to cover any liabilities if the company is wound up. In the case of an unlimited company, liability is not limited and members may be required to contribute all their assets to the company if it is wound up due to insolvency. There is also the option of setting up a community interest company (CIC) which is designed for a social enterprise that plans to use its profits and assets for the public good rather than to financially benefit its members.

Choose a company name

You need to spend time thinking about what to call your company as the Registrar can refuse incorporation if the name you select is inappropriate or already taken by another business. You can use the company name availability checker to see if your proposed name has already been taken. If you are registering a public limited company the letters Plc must come at the end of the company name. In the case of a private limited company, the correct abbreviation is Ltd.

Create a Memorandum of Association (Memorandum) and Articles of Association (Articles) 

Both these documents are required for registration. A Memorandum must be completed on the prescribed form and be signed by the subscribers who declare that a) they wish to form a company under the Companies Act 2006, and b) they agree to become members of the company and take one share each (if the company has shares). The Articles is the foundation document for the company and form the basis of the statutory contract between the members as a group and individual members and the Company. You can choose to use the Model Articles, which can be adapted if required.

Once the above matters have been attended to you will be ready to file Form IN01 (in the case of a private or public company) along with the Memorandum and Articles with the Registrar. If the company you are incorporating is a public limited company that wishes to do business or exercise any borrowing powers you need to apply for a Trading Certificate. This only applies, however, if you are initially registering your business as a public company. If you are re-registering a private company as a public company a Trading Certificate application is not needed.

Steps to set up a limited company

Incorporating a limited company is an exciting venture. It's vital, however, to take care and ensure that every necessary element of incorporation has been thought about and agreed on by all the founders. Below are three top tips for ensuring your incorporation goes smoothly:

  1. Do plenty of research on the advantages and disadvantages of using the limited company legal structure. If a limited company is not the right option for your business right now, you can always incorporate it at a later date.
  2. Carefully go through the Model Articles and make sure they fit your business and ideas of how you want the company to run. It is also a good idea to have a Shareholders’ Agreement drafted early on to protect members and the company from the effects of unnecessary disputes.
  3. Talk with a Company Law Solicitor who can advise you on incorporating your company in a way that will support the achievement of your goals and objectives.

Get legal assistance from LawBite

If you're planning to set up a UK limited company and have questions about company formation do not hesitate to contact us. At LawBite we have a team of expert Company Law Solicitors who are available to answer your questions related to company formation and look forward to celebrating your success. To find out more book a free 15-minute consultation with one of our lawyers or call us on call us on 020 3808 8314.


Additional useful information

In closing

Nothing in this article constitutes legal advice on which you should rely. The article is provided for general information purposes only. Professional legal advice should always be sought before taking any action relating to or relying on the content of this article. Our Platform Terms of Use apply to this article.

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