Set Up a Private Limited Company in the UK

Forming a business in the British country is a decision that many entrepreneurs from all over the world make. Mainly, this is due to the rapid enterprise incorporation process, the tax benefits offered or reduced bureaucracy. Therefore, in this article I explain how to set up a private limited company in the UK.

What Is a Private Limited Company?

A private limited company is the most common type of legal structure among British corporations. The main reason for its popularity is that it has a legal personality that is independent of the one of its owners.

Due to this factor, its directors and shareholders will have limited liability. This means that, in the case the corporation incurs into debts, each shareholder will only contribute to cover them with the money they have invested into the business.

It also stands out because there is not a minimum share capital required or to manage a company, it only needs one director. On these two issues, it differs from public limited companies. The latter requires a minimum share capital of 50 000 GBP and, at least, two administrators. In return, they can sell their shares publicly, which is not allowed to limited companies.

On the other hand, since the sole traders do not need to register with the Companies House, they do not have an independent a legal personality of its owner. Thus, their liability is full. In relation to taxes, they will have to pay the Income Tax, while incorporated companies will pay the Corporation Tax.

Taxes that a Private Limited Company Must Declare

The enterprise will pay a tax amount based on its income within the fiscal year. It will need to declare the Corporation Tax depending on its profits. Moreover, it must register for VAT if it exceeds 90 000 GBP of annual billing.

If someone withdraws funds from the company, they will have to pay their corresponding Income Tax personally.

Steps to Set Up a Private Limited Company in the UK

1. Choosing the Business Name in order to Set Up a Private Limited Company in the UK

The director must take into accounts a number of legal requirements when choosing the name of the company. Firstly, in the UK all limited companies must carry “LTD.” at the end of the denomination.

Secondly, the authorities will not allow names that share similarities with previously registered business names.

Finally, they must not contain vulgar or offensive words, nor acronyms such as LLP (limited liability partnership) or PLC (public limited company).

You can check all the rules regarding company names in this webpage.

2. Designating the Directors and Defining the Commercial Activity

Any limited company must have at least one director or designated member. They have additional responsibilities, particularly in financial and reporting matters. These managers must reside in the UK.

On the other hand, it is essential to define what will be the commercial activity of the company before starting to operate. This is because it will have to pay certain fees and duties or to obtain specific licenses and permits to carry out certain economic activities.

3. Drafting the Memorandum and Articles of Association

This is the last step of the formation process of an enterprise in the UK. The Memorandum is a joint statement of all shareholders in which they agree to form the business. On the other hand, the articles of association are documents that contain the rules and norms that regulate the internal operations of a corporation. In other words, they determine a series of business characteristics.

Once drafted, the directors will send these documents to the Companies House along with certain data of the founding members and shareholders. The fees payable amount to 50 GBP and the process can be completed in less than 24 hours.

Moreover, the corporation must store the data of directors and shareholders, the decisions of the Shareholders’ Meetings, the purchase and sale of shares or debts.

In ukstartcompany, you will find information about how to establish, register and operate companies with different legal structures and business activities in the UK.