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How to Form a Private Limited Company

Online options to register a new company for your business

30 June 2016 | Starting Up

Registering a private limited company can be done quickly and easily online, and there are several ways to achieve this, however there are a few things to consider before going ahead.

There are definite benefits to using a limited company structure for your business, but it isn’t suitable for everyone. We discuss the basics about limited companies, and the main options on how to go about registering a new private limited company.

What is a Private Limited Company?

A company is a separate legal entity – often described as an “artificial person” – that can own property, perform transactions, employ staff, sue, and be sued.

Private limited companies are a common type of business structure used by many (around 1.5 million) small and medium sized businesses in the UK.

Private limited companies are properly called a “private companies limited by shares”. There are other types of company including private companies limited by guarantee, and public limited companies (plc), but the private limited company suits most businesses who choose to operate through a company structure.

The ownership of a limited company is determined by the number of shares held by each shareholder. This type of company is “limited” because the liability of shareholders for the debts of the company is limited to their share investment.

Each limited company is defined by two constituent documents – a “Memorandum of Association”, and “Articles of Association” (usually referred to as just “Articles”). The Memorandum of Association is a signed agreement by the initial shareholders to form the company, and usually remains unchanged. The Articles contain the rules about running the company, and can be changed by agreement.

There is a standard set of Articles called the “Model Articles” which is set out in the Companies Act, which companies will adopt by default unless they specify alternative Articles.

Company Director Responsibilities

A limited company must be registered with Companies House, and there are certain obligations, for example to produce annual accounts, lodge an annual return with Companies House, pay Corporation Tax, and register for VAT in certain circumstances.

These duties are the responsibility of the company’s directors, and every limited company must have at least one director. Directors of private limited companies running a small business are usually, though not always, also the shareholder or shareholders. For more information on director responsibilities, refer to the Companies House Guide to Running a Limited Company.

Do You Need a Limited Company?

Many small businesses operate through a limited company, however it isn’t for everyone.

If you plan to start a business as a sole trader, as a part-time activity, or want to initially “dip your toe in the water” before deciding whether a business is worth pursuing, a limited company may not be necessary and just add cost and complexity for no real benefit.

On the other hand, if you will be employing people, dealing with other businesses as customers, borrowing money, or leasing premises or equipment, a limited company may be a sensible choice. For freelancers and contractors selling their expertise to clients, there can be commercial and tax benefits, as well as adding credibility to your enterprise through having a limited company structure.

For a fuller discussion on the advantages and disadvantages of using a limited company or an alternative legal structure for your business, read our Guide to Choosing the Right Business Structure:

Set up a Limited Company online – the options

Setting up a limited company is a relatively straightforward process, but you have a number of options. We’ll discuss each of these in turn.

1. Companies House online service

Companies House has an online DIY service to register new companies. It is a straightforward process which is cheap (£15) and relatively quick (24 hours). If you are familiar with operating a limited company this could be the most attractive option for you.

It is important to note that the Companies House DIY service does not provide a company secretarial register – limited companies are required by law to maintain one – and it will use the basic Company Model Articles of Association, which may not suit some businesses.

2. Company Formation Agents

Online company formation agents will register a new company with Companies House, often in just a few hours and typically provide a variety of packages with differing features. They also offer extra services if you require them, such as a registered office address for official correspondence.

The company formations industry is highly competitive and there are over 120 company formation agents listed by Companies House. Although most are reputable, there are a small number who provide a very limited service and offer nothing more than the basic Companies House DIY service but at a higher cost, so shop around and look carefully at what you are getting.

3. Shelf companies

A shelf company is simply a limited company that has already been registered, and is available to buy and use immediately.

Company formation agents a
nd other company specialists will often have a range of shelf companies available to purchase. They are usually dormant, have never traded or had any debts, and have lodged annual returns with Companies House.

There are some commercial reasons why an “aged” shelf company may be an appealing option for some, for example for signing contracts in some foreign jurisdictions, and satisfying certain lenders.

All registered companies must have a name, and shelf companies are no exception. Because shelf companies are set up in large numbers without knowing who will ultimately use them, the names will often be a randomly-chosen name or a numeric one – e.g. “Shelf Co Number 327 Ltd”. The company name can be changed, but there are fees for doing so.

4. Accountancy and law firms

Any accountancy or law firm will be able to arrange for a company to be registered for you. If you already have an accountant or lawyer, a discussion about your intentions before you go ahead with setting up your new company may save time and money later on.