A lot goes into setting up a limited company and failing to consider any of the vital components can cause problems later on.
It can be challenging to keep in mind everything you need to do to turn your business dreams into a reality and expert support is vital.
That is why we are taking a look at the aspects to consider when forming a new limited company.
Choosing the right name
They say the best name for a dog is one you would feel comfortable shouting across a park when your new canine companion has developed a fascination with the local squirrel population.
Businesses have a similar guiding principle behind the names.
You want to choose a name that’s memorable, effective and will not make you cringe every time you slip someone a business card.
Companies House, the place where you will need to register your company and submit filings, also have rules around what you can call your business.
You are not allowed to give your business a similar name to an existing company.
It is worth searching for your desired business name on Companies House to see if someone has already staked their claim.
There are a few words that can imply a degree of professional regulation, such as ‘group’ or ‘international’, the usage of these words is restricted and requires approval.
Finding the right share structure
Targeting the right share structure is important because it impacts control, investment readiness and tax planning.
For a small startup with one founder and no aspirations to attract outside investment, matters might be straightforward.
However, where there is more than one founder, an intention to raise further equity, or other complexities, then it is even more important to obtain professional advice.
It can often be more complex to alter a company’s share structure at a later stage in its development, so getting it right at the beginning can save time and cost in the long run.
What responsibilities do directors have?
Being a director carries with it a significant amount of responsibility.
Not only are you in charge of making sure your fledgling limited company can hit the ground running, but you are also beholden to strict legal duties.
Directors are responsible for accurate record keeping and are the ones who face penalties if there are errors or delays.
This forms part of the wider need to stay compliant with filing obligations, meaning that directors need to keep up with annual accounts, confirmation statements and tax returns.
Above all, a director is obliged to act in the best interests of the company and ensure that all trading is legal.
What are the tax requirements for a new limited company?
Tax is inevitable, so you should be ready to start paying what you owe once your limited company is established.
Corporation Tax will need to be paid on any profits that the company makes and must be paid on time to avoid potential interest or penalties.
For all salaries, including your own, you will almost invariably need to register for PAYE.
This will allow you to effectively manage your payroll obligations and ensure that your employees are compensated for their work.
Keeping your employees happy is a core part of running your own limited company.
Depending on the activities of your limited company, you may also need to register for VAT.
It is a legal obligation once taxable turnover crosses £90,000 in any twelve-month period, but some companies do register for VAT before that point and there can be good reasons for doing so.
While being VAT registered does come with some additional administrative tasks, it can generally enable the company to reclaim VAT on purchases that are linked directly to the taxable supplies that it makes.
How will the founders get paid?
Determining a tax-efficient remuneration strategy is key.
We have mentioned how important it is to keep employees happy by paying them on time.
However, you and your founders also have bills to pay, so you will want to take home some money for your hard work too.
Combining salary and dividends is a common way to take pay, with the salary set at the personal allowance (currently £12,570) and the rest as dividends, which can work where the company has sufficient distributable profits, but won’t work if it does not.
Much like income tax, the dividends tax is split into three thresholds, which are currently:
Basic rate | 8.75 per cent | On earnings from £12,571 to £50,270 | The rate rises to 10.75 per cent from April 2026 |
Higher rate | 33.75 per cent | On earnings from £50,271 to £125,140 | The rate rises to 37.35 per cent from April 2026 |
Additional rate | 39.35 per cent | On earnings over £125,140 | The rate rises to 43.35 per cent from April 2026 |
Employer pension contributions within set limits also frequently form part of the mix of many remuneration strategies, since they offer a way to extract profits with no immediate income tax consequences.
Will SEIS and EIS work for my business?
If you plan to raise equity funding to get your limited company up and running, consider the suitability of the Seed Enterprise Investment (SEIS) and Enterprise Investment (EIS) Schemes, which are designed to give tax relief for those looking to invest in qualifying start-up companies.
Professional advice is strongly advisable in relation to this area.
How to set up accounting for a new limited company
Start as you mean to go on by getting your finances squared away from the outset:
- Cloud accounting software for most startups is a good choice
- Open a suitable business bank account for the company before it starts transacting
- Register the company if applicable for VAT and PAYE
- Set up appropriate financial procedures and controls to make sure that risks are managed and compliance obligations are met on time
- Produce and review management accounts regularly from the beginning
Getting professional accounting support early means that you can focus on growing your business with the confidence that your finances are taken care of by those with more experience.
How do you manage hiring new employees?
Registering for PAYE is only the first step in getting ready for employees.
You will need to have employment contracts ready to go that meet the UK legal standards.
Given that the Employment Rights Act has now become law and will be introducing steady changes in the coming months, it would be best to keep this in mind when drafting contracts.
When you are onboarding new team members, be sure to payroll them efficiently and accurately as you could face legal action for failing to pay them on time.
Protect your Intellectual Property
If you are creating anything novel or bespoke, you will want to consider how you are protecting your Intellectual Property (IP).
This might be something as simple as your own branding, but it could extend to the products or services you provide.
A limited company can have IP registered to it, so this will keep IP secure without it being owned by any single founder.
Start planning for growth early
From little acorns, mighty oaks sprout.
Your business is hopefully going to be growing, so you can start laying down the groundwork when you incorporate.
This means keeping up with your obligations and maintaining your finances so that you are not accidentally hindering your own chances of success.
Where possible, try to keep your company’s structure simple and open to investment so that it remains scalable.
Advice is the key to success
As you get stuck into running your business, you will find that leveraging the skills and knowledge of talented individuals is often the way to ensure that everything is done correctly and efficiently.
With that in mind, getting expert financial support is a good way of setting your business up for future success.
We are keen to help promising businesses find their footing and keep compliant with obligations and guidelines.
