Private limited companies are a popular choice when setting up a new business in the UK. They offer business owners the protection of limited liability and legal separation between the business and its owners, whilst opening up financing opportunities and tax benefits. What’s more, they are relatively straightforward to set up, and typically appear more professional to customers and suppliers than operating as a sole trader.
This article explains how to form a private limited company in England in 5 easy steps.
Private limited companies are a popular choice when setting up a new business in the UK. They offer business owners the protection of limited liability and legal separation between the business and its owners, whilst opening up financing opportunities and tax benefits. What’s more, they are relatively straightforward to set up, and typically appear more professional to customers and suppliers than operating as a sole trader.
This article is an introduction of how to form a private limited company in England in 5 easy steps.
What is a private limited company?
If you are setting up a new company, there are various options available to you, but private limited companies are an excellent option. Private limited company can either be “limited by shares” or “limited by guarantee”, depending (broadly) on whether you are a profit making company or a not for profit, respectively.
There are several requirements involved in forming a private limited company in England.
A private limited company in the UK must have:
You must also:
Forming your private limited company
Here are the five steps you will need to take when setting up your company.
Step 1: Choose your company name
Your first step is to find a name for your limited company. You need Limited or Ltd as part of your business name, although this doesn’t need to be included in your trading name.
This step can be both the most enjoyable and most frustrating part of the process. Your company name must be totally unique. You cannot start a company with the same name as any other registered company, and if your name is too similar, it could be challenged by the other company.
You check if your company name has already been taken on the gov.uk lookup tool.
Using a different spelling for the same word, different punctuation or only including commonly used additional words or characters – such as “UK” to differentiate from another registered business name is not accepted. For example, if the name “Bathrooms Are Us Ltd” already exists, registering a company called “Bathrooms R Us Ltd” is too similar and could therefore be challenged.
Care should also be taken to ensure that your company name does not infringe upon the intellectual property rights of any third parties (whether in England or another country).
Step 2: Decide on your directors
All limited companies in the UK must have at least one director. The directors are legally responsible for running the company, keeping company accounts and ensuring the operations of the company are legally compliant. Their correspondence address must be made publicly available on Companies House (albeit the publicly available address can be the Company’s registered office)
Step 3: Agree shareholders or guarantors.
Depending on which type of private limited company you form, you will need to appoint either shareholders or guarantors.
Limited by shares
The majority of limited companies are “limited by shares” and make a profit or loss each year. The shares of the company are divided between shareholders, who each own a portion of the company. Shareholders can also be directors.
When you form a private limited company in England, you need to provide a “statement of capital”, outlining:
If there is only one shareholder, they own 100% of the company and have full control, whereas if the shares are divided between multiple parties, shareholders generally have voting rights according to the number of shares they hold.
Shares can be distributed equally between parties, or unequally, with some being majority shareholders, and others minority shareholders. Majority shareholders generally hold greater voting power and, where bespoke articles of association and/or a shareholder’s agreement are entered into, may also have certain other rights, such as a drag along clause.
Limited by guarantee
Not for profit companies can be “limited by guarantee”
These companies will have guarantors rather than shareholders. Each company will need at least one guarantor who is responsible for the running of the company. There will also need to be a “guaranteed amount” – the amount that guarantors agree to cover if the company becomes insolvent.
Step 4: Prepare documents
There is of course a certain amount of paperwork that must be completed in order to form a private limited company. You must supply the following documents:
a) Form IN01 “Application to Register a company” – This form included the name of the company, your SIC code, your registered office address, details of your directors, shareholders and company secretary (if you choose to have one), and the details of the value and distribution of shares.
b) Memorandum of Association – This is a legal declaration signed by all founding stakeholders or guarantors, agreeing the formation of the company. Once the company has been registered, the memorandum of association cannot be altered or updated.
c) Articles of Association – The articles of association are like the company’s rulebook. They lay out all the details on how the company will be run, management affairs of the company, responsibilities of the directors, shareholder voting rights etc. The articles must be publicly available via Companies House.
In addition to the articles of association, many shareholders choose to have a Shareholder’s Agreement to include further protection to their position either as equal shareholders, majority shareholders or minority shareholders
Step 5 Register your company
Once your paperwork is prepared and your decisions made, the process of registering a private limited company in England is relatively straightforward. It can take as little as a few hours for your company to be formed by Companies House and costs from just £12 at the time of writing.
You can find template documents at The Legal Stop for all your articles of association and shareholders agreements. Alternatively if you would like some legal advice on how to form a private limited company in England, or assistance in completing your company documents, get in touch and we will give you a fixed fee quote on all our work.
The contents of this article do not constitute legal advice and are provided for general information purposes only.
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Catherine is our legal editor, she writes website and blog content for a range of industries including legal, business and retail. Having graduated from Exeter University with a degree in French and Spanish, Catherine spent some time working abroad before returning to Devon. She now juggles a writing career that she loves with bringing up two young children and exploring the Devon and Cornish coastline.