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Considerations When Starting a Limited Company

May 11, 2016

Advice for property investors on limited company benefits from Optimise Accountants

Are you confused about what you need to think about when starting a limited company?

There are a few important considerations when starting a company and unfortunately, the Companies House website is so detailed it can be quite difficult to navigate  when trying to find some answers to questions. As such, some people set up limited companies without knowing what they are getting themselves into.  This can then lead to new directors not completing the necessary paperwork in time, which causes stress and worry.

There are a number of decisions you need to make when setting up a company. These include:

  1. Company name
  2. Directors and their responsibilities
  3. Share structure of the company
  4. Shareholders of the company
  5. Registered office

Company name

Your name can’t be exactly the same as another registered company’s name — search the Companies House register to see if a name’s been taken. Your name also can’t:

  • contain a ‘sensitive’ word or expression unless you get permission from the Secretary of State
  • suggest a connection with government or local authorities
  • be offensive

You can trade using a different name to your registered name. This is known as a ‘business name’.

Business names mustn’t:

  • include ‘limited’, ‘Ltd’, ‘limited liability partnership’, ‘LLP’, ‘public limited company’ or ‘plc’
  • be the same as an existing trademark
  • contain a ‘sensitive’ word or expression unless you get permission

Similar names

Your name must be unique — it can’t be the ‘same as’ or ‘too like’ an existing name.

‘Same as’ names

‘Same as’ names are those where the only difference to an existing name is:

  • punctuation
  • a special character, eg, the ‘plus’ sign
  • one or more words listed in the guidance on naming

Example

‘Hands UK Ltd’ and ‘Hand’s Ltd’ are the same as ‘Hands Ltd’, and ‘Box.com Ltd’ is too similar to ‘Box Ltd’.

When you don’t have to use ‘limited’ in your name. The names of most private limited companies in the UK must end in either ‘Limited’ or ‘Ltd’.

Directors

The Companies Act 2006 requires private limited companies to appoint at least one director who is an individual. The only restrictions that prevent anyone becoming a director are:

  • they must not have been disqualified from acting as a company director (unless the court has given them permission to act for a particular company);
  • they must not be an undischarged bankrupt (unless they have been given permission by the court to act for a particular company); and
  • they must not be under the age of 16.

A private company does not need to have a secretary, but may choose to have one.

Directors must prepare and file documents required under the Companies Act 2006, including the annual accounts and annual returns. Failure to file these documents could result in directors being prosecuted and fined up to £5,000 for each offence and the company could also be struck off the register. In addition, the company will be liable to a civil penalty if its accounts are delivered late.

Share structure

On registration of a company limited by shares at Companies House, the shareholders must agree to take some, or all, of the shares. The statement of capital and initial shareholdings must show the names and addresses of the shareholders and the number of shares each will take. These people are called the subscribers.

A company may have as many different types of shares as it wishes, all with different conditions attached to them. Typically, share types fall into the following categories:

  • Ordinary: These are the ordinary shares of the company with no special rights or restrictions. The company may divide them into classes of different values;

There are different types of Ordinary shares that you can set up as follows

  • Class A – Option to dividends with voting rights
  • Class B – Options to dividends with no voting rights

As you can see that Class A shares has the rights to make decisions on how the business is managed whilst Class B shares have no say. Both types of shares has the rights to dividends. The amount of dividends paid to each share class is to be determined at the year end. It is therefore possible that Class A or Class B shareholders are paid dividends whilst the other is not.

  • Preference: These shares carry a right that the company should pay any annual dividends available for distribution on these shares before other classes;

This is the value paid up on each share — either fully paid or partially paid (eg, £1.00). You can provide additional finances to the company via a director’s loan or allocate more shares equivalent to the total capital. My suggestion is that you set up the company with a £1 share and the rest in loans as these may be repaid tax-free.

Shareholders

The subscribers are the first shareholders of a limited company. A subscriber is a person who subscribes, or puts their name on, the memorandum of association and agrees to take up shares in the company at the time of incorporating the company.

The subscriber details entered on the Companies House Web Incorporation Service will be used to automatically create the memorandum of association, showing the name of each subscriber. A subscriber can be a person or a company/firm. You will need to specify if a subscriber is a person or a company/firm, by selecting the radio button on the screen, and entering the corresponding information.

You can then choose to appoint more subscribers using the appropriate buttons on the ‘Initial Shareholdings’ summary screen, or simply proceed to the next section.

Registered office

By law every company must have a registered office. The registered office address is the ‘home’ of the company to which all official documents, notices and court papers have to be sent by law. This address must be a physical location for the delivery or inspection of documents. It cannot be a PO Box (unless contained within a full address), a DX or LP number.

However, the registered office does not need to be a place where the company carries on its day-to-day business. For example, some companies use their accountant’s address as their registered office. However, the directors are responsible for ensuring their registered office is effective in terms of dealing with all notices, letters and reminders sent by Companies House or other organisations, businesses or individuals. For example, you could receive a legal demand from a creditor and you will need to respond promptly to avoid further action.

Company certificate

The certificate is conclusive evidence that the registration requirements of the Companies Act 2006 have been complied with and that the company is duly registered under this Act. The certificate will state:

  • the name and registered number of the company;
  • the date of its incorporation;
  • that the company type is private limited by shares;
  • whether the company’s registered office is situated in England, Wales, Scotland or Northern Ireland.

The certificate will also be authenticated by the registrar’s official seal.

Next steps — starting a company 

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Telephone: 0115 939 4606
Email: simon@optimiseaccountants.co.uk