Setting up a company can be a daunting task. There’s a lot of unfamiliar language and bureaucracy to navigate. But don’t let it intimidate you – we’ll guide you through the entire process step by step.
Choosing a Company Name
The first thing you need is a company name, once you’ve got your winning business idea. I’m assuming you already have that sorted if you’re reading this. A great company name alone won’t make your business successful – there are plenty of successful companies out there with less-than-ideal names. Ideally, the name might reflect what your company does, but this isn’t necessary. If you build a strong brand, your name will become synonymous with what you do.
Consider the Following When Choosing a Name:
- Ensure the name works in the markets you plan to operate in. Avoid anything offensive or culturally sensitive.
- Make sure there are no competitors with the same name listed on Companies House, and that you can register it as a trademark.
- Check if the domain you want is available. A .com is still the most popular, followed by country-level domains like .uk. There are also newer domains like .tech, .cloud, .app, and .digital. The domain name may be less important now since most people will find you through search engines or social media, but having a unique name will make it easier for people to find you.
Registering Your Company
Once you’ve picked your name, it’s time to register it with Companies House. You have a few options:
- Companies House: You can do it yourself for £50. It’s fairly straightforward.
- Formations Agent: These services can handle the registration for you, often for a small additional fee. They might even have pre-registered companies and can simply change the name and transfer directorship and shareholding to you.
- Other Agents: If you’ve already appointed an accountant, they can probably do this for you. Some banks also offer this service as an incentive to open an account with them.
Since you’re creating a limited company, you need to include "Limited" or "Ltd" in the company name, such as MyCompany Limited or MyCompany Ltd – the choice is yours. Some words, like “accredited,” cannot be used. You can find the full list on the Companies House website.
You’ll also need a registered address. If you have or plan to have an office, this could be your registered address. Many companies use their accountant’s address as a registered address, especially if they also offer company secretarial services (e.g., filing papers with Companies House). You can use your home address, but be cautious if you rent, as this might be prohibited in your tenancy agreement.
Company Directors and Shares
You need at least one company director. It could be all the founders or just one of them – this can change later, so don’t stress too much over it now.
You’ll need to decide on the number of shares. An easy option for a start-up is to have 1,000 shares at £1 each, making your initial share capital £10. You can issue millions of shares if you want, but remember that you’ll be liable for the associated share capital. Keep it simple at this stage, as you’ll likely make changes later by issuing more shares.
For each shareholder, you’ll need:
- Name and address
- Number of shares they own
- Three pieces of personal information, such as a passport number, National Insurance number, or phone digits
Memorandum and Articles of Association
You’ll need a Memorandum of Association and Articles of Association. The Memorandum is simply a statement that the directors are forming the company:
“We, the undersigned, wish to form a company under the Companies Act 2006 and agree to become members of the company, taking at least one share each.”
The Articles of Association are the rules for running the company. They cover liability of members, directors’ responsibilities, share distributions, pre-emption rights, general meetings, and more. These can be generic initially, as they’re likely to change, especially if you introduce a formal shareholders agreement or bring on investors.
Registering for Taxes
You should register for corporation tax, even if you don’t expect to make profits in the first year. Register for corporation tax.
Only register with HMRC as an employer if you plan to have employees. If you don’t expect to have employees for the first few months, delay registration to avoid unnecessary paperwork. Once you do plan to hire, register right away as the process takes a few weeks. Register as an employer.
You don’t have to register for VAT until your turnover reaches £90,000, but you might want to register sooner if you’ll be buying significant items on which VAT will be charged, as you may qualify for a VAT refund.
Other Considerations
Open a Bank Account
You’ll need a business bank account. Consider factors like online banking features, reviews, and what services the bank offers. It’s easy to change banks early on, so switch if you’re unhappy with the service before things become more complicated.
Keep Accounts
You’ll need accounting software to keep track of your finances. A general solution like Xero works for most businesses, though industry-specific options might suit you better depending on your field.
Financial Planning
You may need financial projections. While good venture capitalists (VCs) know that early financial forecasts are just guesses, it’s still a good exercise to work out your business model, profit margins, sales costs, and overheads.
Employment Contracts
If you’re going to hire people, you’ll need employment contracts, which are a legal requirement. These should cover:
- Employer and employee names, addresses, and contact information
- Date of employment commencement
- Job title and description
- Length of contract (if applicable)
- Place of work (if different from the employer’s address)
- Pay details and frequency
- Terms related to work hours and time off
- Holiday entitlement, sick leave, and other paid leave specifics
- Termination notice periods
- Probation and training details
- Pension and benefits information
- Disciplinary procedures
Getting Ready to Go
Once you’ve set everything up, it’s time to look for good payroll software to save you the hassle of running payroll manually!
