how to set up in business company formation sole trader partnership limited company accountancy software

How to Set Up a Business

How you set up a business depends on what kind of business you. It could be a Sole Trader, Partnership or a Limited company.

Setting up as a Sole Trader

If any of the following apply then you should register as a sole trader with HMRC:

  • Earned more than £1000 from self employment between 6th April and the 5th April the following year.
  • Need to prove self employed
  • Wish to make voluntary class 2 and 4 National Insurance Payments

You must register for Self Assessment and send tax returns each year.

Trading as a sole trader

As a sole trader you can trade under your name or choose a business name, although this does not need to be registered it must be included on all official paperwork including invoices.

If choosing a business name you must ensure it does not include:

  • Ltd, Limited, LLP, or Plc
  • Be offensive
  • Be the same as an existing trademark

As a sole trader you remain personally responsible for any debts the business may occur, you also have some accountancy responsibilities:

  • You must keep records of all business sales and expenses
  • Submit a Self Assessment each year
  • Pay tax on profits
  • Pay class 2 and 4 National Insurance

Setting up a Partnership

As the name suggests this is a way for 2 or more people to run a business together, the responsibilities are shared as are any business debts/losses, bills for business stock and also the profits. Each partner pays tax on their share.

When setting up as a partnership you must register with HMRC, choose a name and appoint a ‘nominated’ partner (whose responsibility it will be to manage the partnerships tax returns and keep the business records.

Check the different rules for limited partnerships and Limited liability partnerships at HMRC.

Just like a Sole Trader you can trade under your own names or choose a business name (this does not need to be registered). However all official paperwork must contain all partners’ names and the business name.

If choosing a business name you must ensure it does not include:

  • Ltd, Limited, LLP, or Plc
  • Be offensive
  • Be the same as an existing trademark

You can register your partnership using form SA400 or register as a partner using form SA401 and should do so before the October 5th in the business’s second year or you could receive a penalty.

Setting up a Limited Company

A Limited company is a company that is ‘limited by shares’ or ‘limited by guarantee’.

Limited by shares are usually businesses that make a profit and it it:

  • Legally separate from the people who run it
  • Has separate finances from the people who run it
  • Has shares and shareholdings
  • Keeps any profits it makes after tax

Limited by guarantee are usually ‘not for profit’ and:

  • Is legally separate from those who run it
  • Has separate finances from the people that run it
  • Has guarantors and a guaranteed amount
  • Invests profits back into the company

You will need to choose a company name which cannot be the same as another limited company. You can check if your chosen name is available at Companies House. The name usually ends in Limited or Ltd.

Read more guidance on naming your company here

A sign must be displayed at the registered office of the company (unless your home is the registered office) and the company name must be included on all company documents, letters and publicity.

Directors

Directors must be appointed and they must understand and carry out the following responsibilities:

  • Follow the company’s rules as shown in the articles of association
  • Keep company records and ensure changes are reported
  • Ensure accounts and company tax return are filed with the appropriate body
  • Pay Corporation tax

Shareholders

Shareholders/guarantors must be decided (they can also be a director).

A company limited by shares must have at least one shareholder, who can be a director. If you’re the only shareholder, you’ll own 100% of the company. There’s no maximum number of shareholders.

The price of an individual share can be any value. Shareholders will need to pay for their shares in full if the company has to shut down. You can choose a low share value (for example, £1) to limit the shareholders’ liability to a reasonable amount.

When registering you will need to state the type and number of shares the company has (the share capital) The names and addresses of all shareholders (known as subscribers or members). Also information on the share of dividends and voting rights among other things.

People with Significant Control (PSC)

Anyone with voting rights or shares higher than 25% can be a Person with significant control.

Memorandum and Articles of Association

When registering the company a memorandum and articles of association are needed. The Memorandum is a legal statement signed by all shareholders/ guarantors agreeing to form the company. The Articles of association contain the written rules of the company.

What records should be Kept?

  • Records about the company
  • Financial and accounting records

Records should be kept for at least 6 years.

Registering a Limited Company

Register at Companies House or by using an agent. You will need to provide at least 3 pieces of personal information, for example:

  • Town of birth
  • Mother’s maiden name
  • Father’s first name
  • Telephone number
  • National insurance number
  • Passport number

The Certificate of Incorporation will be sent out to confirm the company legally exists.

The company is automatically registered for Corporation tax if you register this way.

For further advice check out our website or contact AJR & Co Ltd

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Limited company Formation

From AJR & Co Ltd