Registering with Companies House and creating a limited company can provide your business with valuable advantages. Read our guide to why you should do it with step-by-step tips for registering a limited company.
When setting up a new venture, you have various options when it comes to your legal business structure. This includes operating as a sole trader or a limited company.
It is recommended that you speak to an accountant to check which structure is right for you and your business.
What's the difference between a sole trader and a limited company?
There are various differences between sole traders and limited companies as well as pros and cons to each.
Sole traders
A sole trader is a self-employed person who is the sole owner of a business.
Advantages of being a sole trader include:
- It is the simplest business structure to set up and it comes with much less paperwork and responsibilities than limited companies.
- Sole traders do not need to register with Companies House. You only need to register with HM Revenue & Customs for self-assessment tax purposes.
- Sole traders have more privacy than incorporated companies because their details are not publicly available via the Companies House register.
Disadvantages of being a sole trader include:
- There is no legal difference between a sole trader and their business which means they are personally liable for any debts and could lose personal assets if the business fails.
- Sole traders often find it harder to access business funding because banks and other finance organisations usually favour limited companies.
- Unlike limited companies, a sole trader's business name is not legally protected to prevent other people from using it.
- Many business boosting government funding initiatives and innovation programmes, such as some Plus X programmes, require participants to be operating a limited company registered with Companies House.
Limited companies
A limited company is a separate legal entity to its owners and directors which means personal assets are protected if something goes wrong.
Being a limited company does mean more paperwork and responsibilities than sole traders, but it is very often an advantage for new and growing businesses looking for funding and access to learning, expertise and connections offered by innovation programmes.
How to register on Companies House
The government provides detailed guidance for registering with Companies House on the gov.uk website.
Here's a step-by-step summary of the process with links to the more detailed guidance:
Choose a company name
It is a legal requirement to register a business name when setting up a limited company. It can't be the same as the name of another registered business, and if it is too similar to another company's name or trademark, you may be required to change it.
There are other rules including:
- It can't be a 'same as' name, which means the only difference is things such as extra punctuation or special characters.
- It can't be an offensive name, contain a 'sensitive word' or imply a connection with the government or other official authorities if you don't have permission.
To check you are not breaking the rules, you can search the Companies House register and the trade mark database.
Select directors and a company secretary
You must appoint at least one company director. They have various responsibilities, including following the company's rules, keeping company records, filing company accounts and tax returns, and paying Corporation Tax.
It is not a legal requirement to have a company secretary, but you can appoint one to deal with some of the responsibilities of company directors.
Choose guarantors or shareholders
If your limited company is 'limited by shares', which most companies are, you need at least one shareholder. Each shareholder, who can be a director, owns shares in the company. Shares can be any amount.
When registering your company, you need to tell Companies House the number of shares and total value for each shareholder.
Companies limited by guarantee (often known as 'not-for-profits') need at least one guarantor and a 'guaranteed amount'. These are the people who make decisions and control the company, but they don't take any profit.
Decide the people with significant control over your company
People with significant control (PSC) are those who own or control the company.
You need to tell Companies House who your PSCs are during the company registration process and record their details on your company's PSC register.
Prepare company documents
To register a company, you need two documents:
- Memorandum of association: Signed by the shareholders or guarantors who have agreed to form the company. If you register your company online, it will be created automatically. For those registering by post, the government provides a template.
- Articles of association: The rules for running the company agreed to by shareholders or guarantors, directors, and the company secretary. You can use model articles or write your own.
Register your company
To register a company, Companies House charges £12. You can register online or by post. You can also use a third party company formation agent, but the fee might be more expensive.
You need to provide at least three pieces of personal information about yourself and your shareholders or guarantors. Examples include national insurance number, passport number, place of birth and mother's maiden name.
You need a registered office address which is where official written communication will be sent. It must be a physical UK address and in the same country as where your company is registered. Bear in mind that your company information will be publicly available, so you might not want to use your home address. Most company formation agents provide an address you can use.
You need to provide a SIC (standard industrial classification of economic activities) code that describes what your business does.
Your business will usually be registered within 24 hours. You will receive a certificate of incorporation, and your details will be added to the public Companies House register.
Plus X runs several innovation programmes which deliver knowledge, guidance, connections and structure to unlock the potential of a great idea.
Registering with Companies House and creating a limited company can provide your business with valuable advantages. Read our guide to why you should do it with step-by-step tips for registering a limited company.
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