The key to ensuring the successful launch of a limited company is preparation.

Your future business venture could be brimming with potential, but if you don’t create strong foundations for it first, you may face issues further down the line.

In this article, we explore the process you should follow before setting up a limited company, from preparing the correct documents to registering your company and more.

What is a limited company and why should you set one up? 

Before you take the first steps in creating your business, it helps to know how a limited company differs from other business types. The three main business structures include limited company, sole trader and partnership.

A limited company is a term used to describe a business structure that has a separate legal identity from the directors and shareholders.

There are advantages to operating a limited company in comparison to other business structures. Here are the three main benefits:

Professionalism 

Operating as a limited company is often perceived as more professional by other businesses in your industry. While this may seem unimportant to some, it can result in better networking opportunities and access to securing suppliers and investments.

Tax-efficiency 

This depends on the profit you make as a company. As a director, you can benefit from both a salary and company dividends.

Limited Liability

A limited company has a separate legal identity, which means that if anything negative happens to the company, such as liquidation, you are not personally liable and you will only lose what you have put into the business.

How to prepare for setting up a limited company 

While the prospect of preparing to set up a limited company may seem daunting, it is possible to complete the necessary preparation without the need for a lawyer or an accountant.

Here are the 5 main considerations and preparations you should make before you set up a limited company.

Name your limited company

You will need a name to register your company on Companies House, which is an organisation that incorporates limited companies and makes the information available to the public.

This may seem a simple process and you may already have a name in mind. However, you cannot have the same name as another company, which means you will have to check if your list of options is available. There is also a list of words and phrases that you cannot use.

Once you have decided on a name and registered with Companies House, you can rest assured that no one else can use that name.

Choose company directors

Deciding who should take the role of director, as well as how many directors your limited company should have, is important.

This person or group of people will be in charge of running the company, which involves responsibilities, including:

• -   Acting and making decisions that are in the company’s best interest
• -   Ensuring that the company accounts reflect the business’ finances correctly
• -   Keeping records of any developments within the company and reporting them to Companies House and HM Revenue and Customs (HMRC)
• -   Managing the company’s taxes, including tax returns and corporation tax
•  

The reason the role of the director is important is that neglecting or failing to carry out these responsibilities would result in penalties, and in some cases prosecution.

The person or people who take on the role must be sure that they are prepared for this level of responsibility in the company.

Prepare legal documents 

Before you set up your limited company you need to prepare your memorandum and articles of association. These are documents that detail how your company will be run.

The articles of association are the rules your directors and shareholders have agreed to about running the company. You can find examples of articles of association here to use as a reference.

The memorandum of association is a document signed by the original shareholders, as those responsible for forming the company. This document is created automatically when you register your limited company online.

Register and incorporate your limited company 

Once you have ironed out all the necessary details you can register your company with Companies House. During this process, you will be able to choose an official address as well as a SIC code, which is a series of numbers that identify the industry and purpose of your company.

Incorporating your company involves providing the residential address of each director. You also need to include the address registered for the company and a statement of capital which details the company’s structure.

Securing finance

As we’re sure you know, starting a business from scratch is costly. Depending on your industry you may have to make huge investments in property, stock, equipment or licenses, and for many new business owners, the best way to fund this is by securing finance from a bank or lender.

However, securing finance for a new business can be difficult. Most lenders don’t want to risk a significant amount of funding on a business that, from their perspective, may or may not succeed. For this reason, a personal guarantee may be required from those applying for the business loan.

While personal guarantees can be the ticket to securing funding options for your business, they present a huge risk to you. If your business goes into insolvency in the future, you stand to lose the assets you used for your guarantee, which can include property or savings. One way to protect your personal guarantee is through PGI (personal guarantee insurance).  

Personal Guarantee Insurance from Purbeck Insurance 

At Purbeck, we believe that the risk of a personal guarantee shouldn’t stand in the way of your business ambitions.

That’s why we offer personal guarantee insurance, which covers up to 80% of your risk, ensuring that your assets are protected.

To find out more about our policies and how you can build your business with peace of mind, get in touch with our team today.