If you’re working as an independent contractor and not as an employee, your legal status may affect whether you have to pay income tax or national insurance contributions, whether you have protection under employment law and more.
If this is the case, it might be worth setting up a limited company to make sure you’re correctly covered. This article will guide you through everything you need to know about setting up a limited company from start to finish.
Step 1: Choose an entity type
The first step in setting up a limited company is deciding which entity type is right for your business. There are four main types of business entities in the United States: sole proprietorships, partnerships, limited liability companies, and corporations. Each has its advantages and disadvantages, so it’s important to choose the one that best suits your needs.
Sole proprietorships are easy to form but do not offer any protection from personal liability. Partnerships have some protection from personal liability but require at least two people and can be more complicated than other types of entities. Limited liability companies (LLCs) protect from personal liability like corporations do, with fewer restrictions on how the company can be structured or managed.
Finally, corporations offer strong protection from personal liability but are more complicated to form because they must follow state law requirements about stock issuance, elections of directors, and other issues such as shareholder voting rights and dissolution provisions. The best choice for most small businesses will be an LLC or corporation because these provide some degree of limited liability while being relatively simple to set up.
Step 2: Choose a legal structure
If you want to set up a limited company, you’ll need to choose the right legal structure for your business. There are four main types of business structures: sole trader, partnership, limited liability partnership (LLP), and company. Each has its advantages and disadvantages, so it’s important to choose the right one for your business.
Step 3: Register the entity
If you want to set up a limited company, the first step is to register the entity with the Companies Office. This can be done online, and you’ll need to provide some basic information about your company.
Once the entity is registered, you’ll need to apply for a business license. The application process is relatively simple, and you can find all the forms and instructions on the Companies Office website. Once you have your business license, you can start operating your business.
Step 4: Decide on name, address, and bank account details
Choosing a name for your limited company is an important step in the process of setting it up. You want to choose something reflective of your business and will be easy for customers to remember. The address you choose will be the registered address of your company, so make sure it is somewhere that you can receive mail.
When it comes to setting up a bank account, you will need to provide some personal information as well as your company’s information. Once everything is set up, you will be able to start using your account to manage your finances.
Step 5: Decide on directors and shareholders
You’ll need to decide on who will be the directors and shareholders of your limited company. The directors are responsible for running the company, so it’s important to choose people you trust and who have the relevant skills.
The shareholders own the company, so they’ll need to be involved in major decisions about the business. You’ll also need to decide how many shares each person will have. Once you’ve decided on all this, you can move on to setting up the company.
Step 6: Decide your annual return filing requirements
If you’re planning on setting up a limited company, you’ll need to decide your annual return filing requirements. This includes choosing whether to file an annual return, an abbreviated annual return, or no annual return at all. The decision will depend on the size and nature of your business. If you’re unsure, it’s best to consult with an accountant or other financial advisor.
Step 7: Get approval from HMRC
If you’re planning on setting up a limited company, you’ll need to get approval from HMRC. This process can be done online and usually takes around 10 minutes. The only information that’s needed is your business name, your address, and the names of all shareholders with at least 25% shareholding in the company.
The only other thing to bear in mind is that if you have any employees or use subcontractors then they will also need to complete an Employee Status Indicator (ESI) form.
Step 8: Tell Companies House about changes to your business
If you’re thinking about setting up a limited company, there are a few things you need to know. First, you’ll need to register with Companies House and tell them about your business. You’ll also need to appoint directors, set up a registered office, and file annual returns. To avoid any penalties for late filing, make sure you submit the documents on time!
Step 9. Consider tax obligations if you’re a director or shareholder of your company.
As a director or shareholder of your company, you may have certain tax obligations. For example, you may be required to pay income tax on any dividends you receive from the company. You may also be required to pay capital gains tax if you sell your shares in the company.
It’s important to consult with a tax advisor to make sure you understand all of your obligations. In general, it’s best to avoid selling your shares in the company for this reason. If you’re considering doing so anyway, consult with a tax professional first and do your research into potential benefits and consequences before proceeding.
There are many things to consider when setting up a limited company, from the initial planning stages to the ongoing maintenance of the business. But with careful planning and a solid understanding of the process, setting up a limited company can be a relatively straightforward process.