Running-a-limited-company-in-the-UK

Looking to start a business in the UK? You’ve probably been told to go with a limited company (LTD). And we’re not here to challenge that assumption, it’s by far one of the most efficient and dependable business structures here.

But before revving up that entrepreneurial zest, ask yourself these important questions:

Do you know what running one looks like? Are you aware of all your obligations? Have you gotten all the personnel and corporate requirements in place?

If you came up blank with this series of questions, then you’re not alone. Most don’t have extensive experience on what corporate management looks like, but we’re here to change that.

We’re here to provide you with better insights into what business management under this structure really looks like so you can approach it with grounded expectations.

1. What is a limited company?

Simply put, a limited company is highly coveted because of its high degree of legal protection and ease of setup. It has three other variants, each with its own unique characteristics and key features. Namely, they are Private limited by shares (Pvt Ltd), Private limited by guarantee, Public limited company (PLC).

Your business has a separate entity from you which means it’s essentially another entity with its own financial and legal status. Therefore, it can own property, sign contracts, sue, and be sued under its own name.

This translates to your personal assets being safe from meeting the gaze of creditors, a perk that’s almost a must for any business owner as liability tends to increase the more their business scale.

If you’d like to further explore the variants of this business structure and their characteristics of this structure, here’s a useful write-up for you to enjoy.

Limited Company In The UK – A Promising Path For Freelancers

2. What Do I Need to Know When Running One?

What Do I Need to Know When Running One

Here’s a quick rundown of what running a UK limited company would look like. This section includes statutory requirements for both the entity type itself and the duties of its key personnel.

2.1. Do you know who the directors and shareholders are key personnel are?

One of the few things you need to grasp before incorporating this structure is the ownership dynamic within your company. In this respect, there are three key roles that you need to know: directors, shareholders, and people with significant control (PSC).

2.1.1. Shareholders

A private company limited by share needs at least one shareholder and one director to operate, but it’s quite common for a shareholder to be the acting director of his/her own company. The more shareholders a company has, the more its share percentage gets divided.

You’ll need to disclose in detail the share capital (that means your company’s total number of shares and their values) and the names and addresses of shareholders. In addition, be prepared to provide some additional prescribed particulars such as what rights each type of share gives the shareholder.

Here’s a quick example:

Company A has 10 shareholders, so the logical share distribution would be 10% of the company per shareholder.

However, you can also divide it in any other ratio if you want to as long as the total amount of share value is paid upon incorporation.

CTA Note: Companies limited by guarantee don’t have shareholders but rather guarantors who agree to pay a cash sum towards the company debts.

2.1.2. Directors

It’s common practice for a shareholder to also take on a managerial role within their own company, but hiring a third-party individual is also possible. In whichever case, there are certain director responsibilities that you should know, they may include:

  • Filing the company tax return and paying the corporation tax.
  • Keeping track of the company records and reporting the changes to relevant authorities
  • Registering for Self-Assessment and sending personal tax returns yearly

2.1.3. Person with significant control (PSC)

The textbook definition of this role is someone who exerts significant influence over your company either via share ownership or control.

You’re considered a PSC if you

  • Have more than 25% of the company shares
  • Have more than 25% of the company voting rights
  • Are able to appoint or remove the majority of the board of directors

2.2. Do you have an estimate of the overall costs?

Assuming that you want to set up a private limited company online, a modest fee of £12 is all it takes. Want to register by post instead? The fee you’ll be paying would be £40 for the 8-10-day turnaround or £100 for the same-day service.

Yes, you read that right, Gov.uk says so on their own site so you can rest assured that’s the exact amount you’re going to pay.

Of course, this is only when you’re incorporating by yourself and already have the following information ready.

  • The company name
  • A memorandum of association
  • A completed form IN01
  • Articles of association

But if you’re like most people and incorporate through a registered agent or accountant then the setup cost can vary between providers.

2.3. Are you aware of all the compliance requirements?

In return for the liability protection and tax breaks of a private limited company (LTD), you’re obligated to abide by its maintenance requirements.

Need a quick view on what compliance might look like in your case? Give our Guide to Countries’ Annual Compliance a try and get your results now.

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2.3.1. Filing annual accounts

A prerequisite for company formation is choosing the accounting reference date for your company.

Once this time frame is established, your company is expected to file the first accounts at the Companies House within 21 months of the end of each accounting period after the registration date of your company.

From then, you’re expected to file the accounts annually every 9 months after your company’s financial year-end.

It would also help to know that late filing has its own tier-based system of penalties which increases in amount the more dates you’re behind.

  • Up to one month late £150
  • One to three months £375
  • Three to six months £750
  • Over six months £1,500

2.3.2. Filing tax return

As a director, it’s one of your first priorities to make sure the corporation tax return is submitted on time, within 12 months after the end of the accounting period the return covers.

This timeframe is typically true for many companies as it’s common practice to merge the accounting period with the company’s financial year-end. As to when you’re required to pay the corporation Tax bill, it’s usually 9 months and 1 day after the accounting period ends.

2.3.3. Auditing and submitting consolidated accounts

Your company is required to perform an internal audit if it exceeds the following thresholds:

  • Turnover threshold £10.2m
  • Gross Asset threshold £5.1m
  • Number of employees 50 or more

If 2 out of these above thresholds are not met, your company is thereby considered exempt and doesn’t have to conduct the audit. However, if the shareholders who own at least 10% of shares ask you to then you are still obligated to fulfill their wish.

But it doesn’t stop there just yet.

Your company must perform an audit if at any time in the financial year your company has been one of the following business models

  • A public company (unless it’s dormant – read the dormant accounts section of the company accounts guidance)
  • A subsidiary company (unless it qualifies for an exemption – read the subsidiary company section of the company accounts guidance)
  • An issuer of electronic money (e-money)
  • A funder of a master trust pensions scheme

For the complete list of mandatory audit entities, visit here

Keeping up with your company finances is crucial as it helps you remain in good standing and stave off any potential mishaps with regulators in the future.

A dedicated accounting department is therefore hugely beneficial in most corporate bodies for this reason, but not without its drawbacks. Maintaining one requires a considerable amount of time and effort that not any business can easily afford.

So the second-best way is to opt for accounting & auditing services from either a reputable firm or from your corporate service provider.

2.3.4. Filing confirmation statements

You might have heard this being called an “annual return” before, and they’re basically the same thing.

Once you’ve filed all the financial information of your limited company to the Companies House, they expect you to follow up with confirmation statements. The purpose? To verify that the information presented is valid and up to date.

Note that this is filed on a yearly basis and on the day that your company was established.

2.3.5. Reporting changes

As part of your director duties, you are required to oversee and report any changes made to your company’s being. These include the following:

  • Your company decides to change its address or allocate the documents in the said address to someplace else.
  • The directors or PSCschange their personal details such as address.
  • There’s a change in your company’s current secretaries.

3. What Does Setting Up One Look Like?

There are two ways that you can do this, either register your company by yourself, meaning that you’ll need to collect and verify documents on your own before sending them to the Companies House. Or opt for a registered agent and save yourself the trouble.

Once everything is set and done, you’ll receive a Certificate of Incorporation with your company’s number and date of formation shortly after it’s been registered. The next step to take would be to register with the HM Revenue & Customs (HRMC) and open a business bank account to start receiving payments.

If you’d like to move forward to the incorporation stage, take some time to read our dedicated article on setting up a limited company in the UK.

Need a more personalized experience? Feel free to drop us a message for support. We have experience helping freelancers with company incorporation and compliant requirements. And we’ll be happy to help you find the right structure for your future.

Disclaimer: While BBCIncorp strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact BBCIncorp’s customer services for advice on your specific cases.

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