This article is all about how to set up an official private limited company, but to write about that subject requires me to make some assumptions. Without any, I’d have to write an entire book. So here are my assumptions – if more than a couple of these hold true, read on:
- You’ve got a ton of ideas and are struggling to find time to work on any of them
- You’ve hardly got any money to use to seed a company
- You want to build a company, a brand and/or something you can point to and call your own
- You live in the UK
The last one doesn’t preclude you from enjoying this article, but I’m going to focus on the specifics of starting up in the UK, because that’s where my experience lies. The bootstrapping blog has a guide for any Americans reading.
Keep things digital
The first thing we want to do is stay online as much as possible. It’s no longer necessary to make use of a legal professional in order to start a company. We can keep the costs down by registering online. But first you need to decide what your company is going to be called.
Pick a name, any name
Except one that’s taken. Or hard to spell, or hard to say, or hard to read, or easy to mis-interpret. Don’t pick a name where the main dot com and .co.uk website addresses are taken either.
It’s a tricky business. If your first choice is available, then you’re either incredibly lucky or you’re not quite on the right path. It has to be catchy but not tacky, classy but not snooty. Think how it will look in people’s web browsers. Think how it will look on a business card. Think how it will look on a 50ft billboard. (I know, I know, I’m getting ahead of myself here).
There are a few laws about your name – it can’t use certain words such as “royal” or “institute” and you can’t use an offensive name. Other than that, the choice is yours.
Jot down some ideas, as it’s usually easy to use your instincts to come up with simple themes. Once we start running checks you can use those themes to generate specific names. Before we check with companies house though, there’s one more step.
Pick a friend, any friend
You’ll need a company secretary. This is a serious role, but one you will transfer to your accountant as soon as you have one, so for now all you need is a willing friend who is happy for their name, address and some minor security details to be sent to Companies House.
The company secretary is a poorly defined role in literature. The basic duties are filling in a few forms every year and making sure the (legally required) company ‘returns’ are complete. However, you’re going to need an accountant as soon as you start generating revenue from your company anyway. He or she will be more than capable of handling all your returns, so for now you just need a willing volunteer to act in a temporary capacity.
It’s safe to pick a friend because:
- The Inland Revenue don’t require any forms until 3 months after the start of your first trading period
- Companies House don’t require any returns to be filed for a year.
- As soon as you start bringing in money, you’ll need an accountant in order to maximize your own earnings. The accountant can safely act as your company secretary as soon as any real paperwork needs completing, (for just a small fee)
I made the mistake of paying for an official “nominated secretary” and it was a total waste of money. I soon updated my secretary details to a person I knew in order to get my banking sorted, (see below).
Once you’ve picked your name, run the check at Companies House and then run a check to ensure your company name is available as a dot com domain name. Always run the Companies House check first – some domain name checkers have no scruples and will reserve domain names if you don’t buy them within a few days. If you find a good name that’s available at Companies House, sit on it until you’re almost ready to setup the company.
Once you have the name, pick a company registration website, any on the first page of google should do. The only services you need them to provide are as follows:
- Form your company electronically with Companies House
- Provide you with electronic copies of the relevant documents, (memorandum of association and your certificate of incorporation)
- Provide you with a professionally printed certificate of incorporation (required to open a business bank account)
You do not need them to do anything else, such as nominee secretary, (expensive), mail forwarding (insanely expensive) and you do not want them to print stationary for you.
All in all, it shouldn’t cost more than £40, depending on who you register with. If you really shop around, you should be able to get a deal for about £20. If you end up staring at a bill that is near to £100, then stop, close the browser and start again.
Relax, and pop the bubbly
If you’ve just formed your company, congratulations. Pat yourself on the back, and if you’ve got some fizzy wine to hand, have yourself a glass and toast your future success.
Once your company formation paperwork arrives, it’s time to get yourself a business bank account.
Assuming you already have a personal bank account, your bank will likely be able to offer you a package for business banking. It’s important to have a business bank account so you can clearly distinguish your own finances from the finances of your company. This is essential for doing accurate tax calculations later in your company’s life, so it’s a good idea to get it sorted early on.
To open your bank account you will need the following:
- Your (printed) certificate of incorporation
- Access to your company secretary
- “Proof” that you are not a fraudster, terrorist or illegal immigrant
The latter is made much easier if you are already a customer of your chosen bank. At this point you will need to have a company meeting with your secretary and produce formal minutes that declare your intent to appoint your bank as “the legal banking entity for the company”. This is easier than it sounds; download a template of formal minutes from the web, or ask one of your relatives who has done a college course in administration to produce them for you.
Get an accountant
Now that you have a bank account dedicated to your business, you can start issuing invoices and buying goods for your company. However, once you carry out a financial transaction on behalf of the company, you’ll need to think about filing some paperwork with Companies House telling them the dates of your financial year. Unless you’ve read up on corporate law, the forms can be a little intimidating, so it’s a good time to get a professional accountant.
It’s also a good idea to have an accountant available to maximize the salary you get from your company. It can take some time to get your head around the legalities of paying yourself from money that it feels like “you” have already earned on behalf of your company.
Work work work
Your company is now a legal entity and all the requirements are taken care – you’re ready to start getting on with the important business of your business! Now may be a good time to set up a website and start publicizing any products you’ve been building. If you need help with either of those, get in touch. If you already have a website but need to get more exposure, check out Crossbone’s products.
While the steps above show a method of company set-up that’s as cheap and efficient as possible, they are by no means the only way to do it. Please feel free to share your own experiences in the comments below.
Thanks for the link. I’m going to update my blog later with a link here for my UK readers.
Glad you blogged about your experiences. I just started up a company and I wasn’t sure about tax. Lots of information everywhere and everything is so general as to be almost unhelpful. Thankfully I discovered your blog, and have been reading through various posts. Brilliant stuff. Thanks.
Starting your own company can be done for very little money. There are many company formation agents that provide online services. However, I would strongly suggest that you look into the financial side to running an LTD. There are certainly tax benefits from operating your business as a limited company. There are clear tax savings under the current tax laws through the payment of dividends instead of PAYE. However, you are likely to incur accounting fees and you will need to file corporation tax returns each year. These will range from a few hundred pounds to a few thousand depending on your business.
When forming a limited company directors should be aware of the Accounting responsibilities. There are legal requirements to file accounts.
I love this post – the angle is great and goes into a lot of detail that I didn’t personally know much about. Especially the bit about picking a friend as your secretary for the first 3 months. I’d be worried of the implications of that but it sounds like a great idea until the accountant role is required. Thanks for the information – Stumbled 🙂