Setting up a company can be very rewarding, but it also comes with its own set of requirements.
If you are thinking about setting up a company, it's important to know what requirements there are for doing this legally.
Part 1: Setting up the business
The first thing you'll need to do is by law to protect your business/trade name. To do this, in the UK for instance, you will need to register a legal entity with a trade or legal name that you want to use through Companies House (the UK's registrar for companies). You will also have to pay an annual fee to keep it registered each year, although if you are sharing the same address as another company, they may share the cost between themselves. You must also follow strict rules regarding naming conventions and how your name appears on legal documents and products. Your logo cannot appear in one colour only, so bear this in mind when considering using colourful logos. You must also include your business name and address on any advertising material you intend to use, such as flyers and posters.
The next thing you'll need is a bank account. This can be done without too much trouble, and banks offer an easy way to set up a new business bank account online. One of the requirements for setting up a company is to open an account with either 3 signatories who are over 16 or 1 signatory who is over 18; all of which should be directors (it shouldn't matter if they live in the UK or abroad). Once this has been set up, you will need to provide signed documents stating that the signatories agree that they want to act as directors for your limited company. Documents also must be provided that are proof of the address these people are registered at.
Finally, you'll need to file documents with Companies House. These include your Memorandum & Articles Of Association, a certificate evidencing each director was given notice of their acceptance as a director, confirmation that all company shares have been fully paid for, and evidence your business accounts have been filed.
Part 2: Business costs & running costs
There are many different overheads when setting up a limited company, so it is important to be aware of them in advance. When starting out there are some small but necessary monthly spending that will arise such as fees for registering with HMRC, trade associations or industry bodies, etc. There may also be employees to hire, IT equipment to purchase, and other monthly expenditures such as items such as stationery, utilities, and telephone costs. The costs can add up very quickly, so it is advisable to set aside a reasonable sum in advance for start-up expenses.
It's also worth remembering that when you create a limited company, you will be required to pay corporation tax rather than income tax (which works out much better overall in the long run). However, there are additional taxes that will need to be paid, and these vary depending on the size and nature of your business. A further consideration - although this won't come into play until later - is VAT registration, which is compulsory if your annual sales exceed certain limits (£64k/yr for most businesses). It's important not to ignore these taxes, as they can become a lot more expensive if you don't make the required payments. To learn more about taxes and how to pay them, visit www.hmrc.gov.uk
Part 3: Time commitments & legal obligations
As well as the initial costs of setting up, there are also time constraints to consider when operating your own limited company. For example, your directors will be legally responsible for making important decisions, so it is advisable that you have meetings once per month around an agreed agenda, so you can keep on top of things. Also, remember that all changes in shareholdings must be reported to Companies House within one month which requires additional administration time (if you are just starting out then this may not apply, however).
Non-executive directors are not expected to work in the business any more than is required for them to carry out their duties. However, all directors share responsibility for ensuring that your company complies with its legal obligations. For example, they must ensure company records are kept up-to-date and accurate (including minutes of board meetings), directors file annual reports on time and if you ever go public then the director's statutory report must be made available online within 21 days of filing it at Companies House.
Part 4: The benefits & drawbacks
As well as considering what you will gain from becoming a limited company, there are also potential drawbacks to bear in mind before setting up. You'll need to consider how much money you are willing or able to invest into your new business since this will determine how much you pay in corporation tax. If your business is successful, then not having to pay income tax could be a huge advantage, but it may limit the amount of money you can make personally if limited company profits are lower.
Being a director for a limited company brings with it some great benefits such as increased professional credibility, legal protection, financial advantages, etc. It also allows you to develop many new contacts within the business world, which can increase your own experience and help move things forward. However, setting up a limited company does require time, money, and effort on your part, so whether or not it is worth doing depends on your circumstances.
When you're setting up a limited company, there are many issues that need to be considered. The good news is that the process of starting your own business can be relatively simple and inexpensive as long as you take all relevant factors into consideration before taking action. By learning about the requirements for setting up a company, it will help avoid costly mistakes and ensure everything runs smoothly from day one. Hopefully, the pieces of advice shared here have improved your confidence in having the various things needed for setting up a limited company under control.
