Setting up a Limited Company

Step-by-Step Guide to Setting Up a Limited Company

Many of our clients begin their entrepreneurial journey as a sole trader, making them self-employed.

At some point, you and your tax advisor may decide it’s time to go limited. This could be for various reasons, such as potential tax savings or to attract investors.

Read more about the pros and cons of going limited here.

In this guide, we explain the exact steps you need to take when registering a limited company and what this means for your business in terms of tax, structure, and your legal responsibilities as a company director.

What Is a Limited Company?

A limited company is a legal business structure that exists separately from its owners (shareholders) and Directors.

Key Benefits:

Limited liability: Your personal assets are protected if the company incurs debts or legal issues.
Separate legal entity: Your business finances are completely separate from your personal finances.

If your company fails or faces legal action, you are only liable for the amount you’ve invested ie such as the value of your shares.

Why Set Up a Limited Company?

Setting up a limited company can offer significant financial and legal advantages:

✔️ Limited liability protection

✔️ Lower corporation tax rates compared to self-employment

✔️ More credibility with clients, banks, and investors

✔️ Flexible profit distribution via dividends

Profits under £50,000 are taxed at 19%, while profits above that fall into the marginal relief band up to 25%.

Do I Need an Accountant to Set Up a Limited Company?

Technically, no you can register a company yourself.

However, we strongly recommend speaking to an accountant, especially if:

You’ll have more than one director or shareholder
You’re unsure how to structure your business
You want to maximise tax efficiency and minimise risk

An accountant can ensure your limited company is set up correctly from the start.

How to Set Up a Limited Company: Step-by-Step

1. Make Sure It’s Right for You

Confirm that a limited company structure suits your business model and long-term goals.

2. Choose Your Company Name

Your company name must be:

Unique and available
Non-offensive
Not misleading or similar to other registered companies

You may trade under a different name, but you can’t use “Limited” unless it’s the registered name.

3. Choose the Type of Limited Company

There are two main types:

Limited by Shares

Suitable for most for-profit businesses
Owned by shareholders
Profits distributed as dividends
Shareholder liability is limited to their investment

Limited by Guarantee

Ideal for non-profits and charities
No shareholders – only guarantors
Income usually from donations, grants or memberships

4. Appoint at Least One Director

Your limited company must have at least one director.
You do not need to appoint a secretary, but you can have more than one director.
You can check eligibility requirements for directors here.

5. Decide Who Will Be Shareholders

You’ll need at least one shareholder.This can be the same person as the director.
Anyone owning more than 25% of shares is classed as a Person of Significant Control (PSC).

6. Prepare Your Company Documents

You’ll need to prepare key documents that explain how your limited company will operate:

Memorandum of Association
Articles of Association
Statement of Capital
Statement of Guarantee (if limited by guarantee)

7. Know What Records You Must Keep

You must maintain accurate business records including:

Company details and shareholder information
Annual accounts and tax filings
All financial records (for at least 6 years)

8. Register with Companies House

You’ll need to:

Register your company name and type
Provide an official company address
Choose a SIC code to classify your business
Register for Corporation Tax (can be done at the same time)

IMPORTANT: Choosing the correct SIC code is important as it tells HMRC and Companies House what your company does.

How Much Does It Cost to Register a Limited Company?

It costs £50 to register your company online.

You can also register by post using form IN01 — this costs £72. (figures as at June 25)

What’s Next?

Online registrations are usually complete within 24 hours of receipt of your application & postal applications take up to 10 days.

Once you’ve registered your company, you will receive a 10-digit UTR number (Unique Tax Reference) in the post. Your accountant will require this information, so keep it safe.

You will also receive your Certificate of Incorporation, confirming that your company is legally recognised. This document will include your company number and the date of formation.

Your Responsibilities

As director, you have legal responsibilities for running the company and ensuring information is sent to Companies House on time. This includes:

The confirmation statement
Annual accounts – even if the company is dormant
Any change in your company’s officers or personal details
Change of the company’s registered office address
An allotment of shares
Registration of charges (i.e., mortgages)
Any change to your company’s people with significant control

You will also need to file accounts and pay Corporation Tax.

We strongly recommend you hire an accountant to help manage your company. However, you are still legally responsible for your company’s records, accounts, and performance.

Getting Expert Advice

Setting up a limited company offers a number of advantages. While the process is relatively straightforward, it is extremely important to understand the responsibilities that come with it.

You must stay informed of your ongoing duties and ensure that your company is well-positioned for success and remains compliant with UK regulations.

At Smart Accountants, we help business owners like you set up, structure, and grow their limited companies the right way.