7 tips for forming a limited company

Every startup needs to consider carefully what type of company formation suits it best. James Cartwright guides you through setting up a limited company.

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28th September 2009 at 11:59 am

1. Yourself vs. Formation Agent

If you set up the company yourself it can appear to be the cheapest option in the short term and you can do this directly with Companies House.  However it can be difficult to work out which forms to fill in and can take longer to process.  Plus you will need to supply your own memorandum and articles of association which can be time consuming and expensive to obtain. Using an online formation agent is much easier as they will have an online application that you have to fill in which they then use to form your limited company.   If you find the right formation agent they can incorporate your company for around £25.

2. Company Name

Picking a name is an important part of setting up a new company, but don’t let the excitement distract you from doing some research.  Check that your name is available before applying so that your application isn’t rejected.  Also make sure that the URL you will want after forming your company is available and that someone else doesn’t have a trademark on the use of the name.   Otherwise you may have to change it later on.  Finally check your name against the sensitive words list on the Companies House website.  If you use a sensitive word, you may have to provide supporting documentation or obtain approval from a Government department to use it.

3. Business Plan

Make sure you don’t start your company without putting in place a business plan.  Without one you do not have a “road map” helping you with what direction you are going.  In addition you may well have to provide a plan to your bank when looking for funding.

4. Company Secretary

Carefully consider whether you should appoint a company secretary.  Just because it is no longer compulsory does not necessarily mean that you should not appoint one.  Their tasks include Companies House filing and maintaining the Company Register which are important legal requirements.  Having an experienced person who can focus on these compliance matters takes some of the burden away from  the directors, allowing them to focus on managing the company and growing revenue..  Alternatively you may wish to use a professional firm to act as your company secretary if you are worried about this.

5. Registered Office

Using your home address can result in privacy issues as it is made publicly available.  Always consider using a different registered office address, even that of your accountant or solicitors.  Please note that from 1st October 2009 directors can disclose a service address as opposed to their residential address so their privacy can be maintained

6. “Off the shelf” Companies

It is usually not beneficial to buy an off the shelf company. By using one you are buying a limited company that has already been registered at Companies House, and in theory has never traded.  However you do not personally know the initial shareholders and officers and therefore it is always advisable to incorporate a company yourself.

7. Limited Company vs. Sole Trader

You should make sure you seriously consider whether your business should trade via a limited company or via you as an individual and sole trader.  There are good reasons to trade through a private limited company, but they are not always beneficial for everyone.   It is worth talking this through with a Chartered Accountant before making the decision if you are unsure.

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James Cartwright

James is the managing director of Wisteria Formations, one of the UK’s leading online company formation agents. http://www.wisteriaformations.co.uk

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