Q&A: Setting up a limited company

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Andrew Millet of Wisteria Formations provides an introduction to the rules about forming a company

What is a limited company?

It's a separate legal entity formed to conduct business. Because it's 'incorporated' - incorporation simply means forming a company - it has a legal identity that is distinct from its members. The finances of private limited companies are entirely separate from those of its owner(s).

What are the main options when setting up a limited company?

There are four main options when deciding what form your business should take:

  • Private company limited by shares. These have a share capital and the liability of each member is limited to the amount paid and unpaid on shares they hold. A private company cannot offer its shares for sale to the general public.
  • Private company limited by guarantee. Members don't make any contribution to the capital during its lifetime, because they don't purchase shares. Their liability is limited to how much each member agrees to contribute to the company's assets if it's wound up.
  • Private unlimited company. This may or may not have a share capital and there is no limit to members' liability. Consequently, the company has to disclose less information.
  • Public limited company. These have a share capital and the liability of each member is limited to the amount unpaid on their shares. A public limited company may offer its shares for sale to the general public and may be quoted on the stock exchange.

What are 'Community Interest Companies'?

Limited companies for those who want to operate a business for the community benefit, not purely for the benefit of company members. The CIC Regulator must approve applications and plays a continuing monitoring and enforcement role. A company cannot be a CIC if it seeks to become a charity, political party or a political campaigning organisation.

How do I set up a limited company?

If you want to form a new company, you must send Companies House your:

  • registration fee,
  • memorandum of association,
  • articles of association,
  • completed IN01 form ("Application to register a company"), which details the company's registered office and the names and addresses of its directors (and company secretary, if applicable), who sign the application accepting the duties and the responsibilities of the role.

Legislation generally allows one or more people to form a company for any lawful purpose by subscribing to its memorandum of association. Ready-made companies are available from formation agents.

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What are the memorandum and articles of association?

The articles of association are the documents that lay out how a company should be run, setting down the rules that company directors and officers are expected to follow. This includes everything from administrative processes, such as what would happen should the company close, to guidelines for shareholders and the appointment of directors.

These rules aren't just important from a legal perspective - being something that Companies House insists every business should have - but also from the point of view of being able to run your company effectively, with clear instructions that every member of the board will have to have agreed upon.

Where can I get memorandum and articles of association?

If you're not too sure where to begin, the government has default template articles on the Companies House website. If you're happy to use these standard documents - which certainly offer everything that a small, new company will need - all you need to do is let the government know during your application.

However, if you want something tailored to the unique needs of your own start up, there are plenty of other options available. There are model articles that you can download and edit as appropriate. You can also approach a formation agent or chartered accountant who can help you draw up your articles.

What happens after I submit the application to set up a limited company?

All your documents are checked - including verifying that prospective officers are not on the Companies House Disqualified Directors' Register. If documents satisfy examination and name-acceptance tests, the company is formed. A certificate of incorporation is issued and documents are published on the public record.

What is the minimum number of directors a limited company can have?

Private companies must appoint at least one director - unless their articles of association stipulate more. A private company no longer has to appoint a company secretary, unless its articles of association expressly require it. A public company must have at least two directors and one formally qualified secretary. See the Companies House website for a detailed breakdown of directors' responsibilities. All company officers have important responsibilities in law. The key requirements are set out on the Companies House website.

Can anyone be a director of a limited company?

Generally, the members appoint people they believe will run the company properly on their behalf. These are the directors. The only restrictions are: they must not have been disqualified from acting as a company director (unless a court grants special permission); they must not be an undischarged bankrupt; and they must be at least 16-years-old. At least one company director must be an actual person.

What's a 'registered office'?

A registered office is the official limited company address to which Companies House is instructed by you to send notices, letters and reminders. To avoid delays or other problems, you should deal with all correspondence sent to this address promptly. If your company wishes to change its registered office address after formation, you must notify Companies House via Form AD01.

Written with expert input from Andrew Millet of Wisteria Formations.

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