There are many widely-held myths about setting up and running limited companies in the UK. We know this because of our years dedicated to providing incorporation and company secretarial services.
Much of these commonly-held beliefs are simply not true, and they discourage new and existing businesses from setting up a limited company and taking advantage of the benefits available.
In this blog, we cut through the fiction and get to the truth concerning UK limited companies.
Myth #1 – It costs too much to set up and run a limited company
In the past, it was expensive to set up a limited company in the UK. In 1975, for example, the cost of company formation was £50.00, which is equivalent to £415.00 in 2019 and around the same as a weekly wage.
In the UK today, you can register a limited company for less than £10.00; however, please bear in mind your company will need a registered office address. If you don’t want to use your home address for this purpose, you can invest a little more and also protect the privacy of your home by using a virtual registered office and service address – see our Privacy Package costing £27.99.
The cost of running a limited company is generally a little more than running a business as a sole trader, mainly due to the need to prepare and file annual accounts at Companies House. Having said that, we would recommend all businesses prepare accounts, whether there is a statutory need to file them or not.
Many small business owners prepare and file their own annual accounts; however, most enlist the help of an accountant, usually paying £750 to £1,500 per year.
The other limited company filing requirement is an annual confirmation statement which you can file yourself at Companies House at a cost of £13.00 or you can ask a professional to do this for you – see our Confirmation Statement Service costing £34.99.
Myth #2 – It takes a long time to register a company
The time required to register a company in the UK ranges from a few hours to over a week, depending on which method of incorporation you choose. Online registration through a company formation agent takes the least amount of time – the application form takes around 5 minutes to complete, and most companies are registered and ready-to-trade within 3-6 working hours.
At the other end of the scale, Companies House postal applications take 8-10 working days to process and the chances of rejection are considerably more than with online applications.
Myth #3 – You need an accountant to set up a limited company
In the past, most people used an accountant or a solicitor to set up a limited company. Thanks to the advancement of technology, company registration is now much quicker, easier, and affordable. Today, the vast majority of people set up their own companies online using a company formation agent or the Companies House website.
You can certainly use an accountant to set up a limited company, but it will cost more – usually around £250.00.
Myth #4 – Setting up and running a limited company is difficult and complex
It’s incredibly easy to set up a limited company if you choose to incorporate online through a company formation agent. It’s completely secure, the application form is a doddle to fill out, no paperwork or physical signatures are required, and expert help and advice is on-hand should you require it.
In terms of running a limited company, there are a few filing and reporting requirements with strict deadlines, but these can all be done online. They are relatively straightforward, and you can sign up for free email reminders from Companies House or a company formation agent.
You can also appoint an accountant to take care of these things for you. Either way, for many business owners, the advantages of setting up a limited company far outweigh any additional requirements.
Myth #5 – Anyone can register a company
There are very few bureaucratic barriers to registering a company in the UK, which is of great benefit to many small business owners, entrepreneurs, and the economy as a whole.
Most people can register a company in the UK; however, you cannot do so if you are:
- under the age of 16 years
- an undischarged bankrupt
- a disqualified director
There are no statutory restrictions relating to residency or nationality, which means that non-UK residents are permitted to set up and run a UK limited company.
Myth #6 – You need at least two shareholders to form a limited company
You need at least two shareholders (and a company secretary) to form a public limited company (PLC), but only one shareholder is required to form a private limited company (LTD) in the UK.
In fact, the same person can be the sole director and sole shareholder, allowing just one individual to set up a company, have full ownership and control of the business, and receive 100% of any profits. This is a suitable and popular set-up for all types of small businesses, including startups, entrepreneurs, sole traders, and self-employed persons.
Myth #7 – You need at least one UK-resident director or shareholder to incorporate a UK company
Not true! You can incorporate a UK company without a UK-resident director or shareholder.
Regardless of nationality or country of residence, one person can set up and run a UK limited company from anywhere in the world, as long as they are at least 16 years old, not an undischarged bankrupt or disqualified director, and they maintain a registered office address in the same UK country as incorporation.
Myth #8 – Directors have to be shareholders
Whilst it is commonplace for directors of a company to also be shareholders in the business, it is not a legal requirement. Directors can simply be appointed by shareholders to manage a company on their behalf. In such cases, the directors act as agents of the company. In many companies, however, directors are also shareholders.
Myth #9 – Shareholders have to be directors
Shareholders are the owners of a company; directors are appointed by shareholders to run the business on their behalf. There is no legal requirement for shareholders in a company to also be directors, but it is quite common for the same person or persons to hold both positions.
As such, shareholders may choose to appoint themselves as directors and run the company themselves, or they may decide to hire other people with specific expertise to manage the company for them.
Myth #10 – You need to have a company secretary
Public limited companies are legally required to have a company secretary. However, since April 2008, there is no longer any statutory requirement for private limited companies in the UK to have a company secretary, unless the articles of association state otherwise.
Nevertheless, a private company may choose to appoint a secretary to assist the director with his or her responsibilities.
Myth #11 – You can register a company using any name
If this were the case, we’d have some outrageous company names on the go! There would also be a great deal of confusion and many corporate disputes due to multiple businesses sharing identical company names.
Thankfully, Companies House imposes very strict, yet sensible rules and regulations. As a result, you can only register a company name that:
- is not the same as another registered company’s name
- is not too similar to the name of another company
- is not offensive
- does not contain a ‘sensitive’ word or expression
- does not suggest a connection with the Royal family, government, or any local authority
Check out the GOV.UK website for more information on incorporation and names.
Myth #12 – Registering your company name provides trademark protection
Registering your company at Companies House does not provide any rights or protection other than preventing another company from incorporating under the same name.
Your company name will not have trademark protection unless you register it as a trademark. Furthermore, the availability of a company name does not mean that it is not a registered trademark.
Myth #13 – You need to provide your own articles of association
There is no need to provide your own articles of association when you register a limited company in the UK. Standard articles, based on the Companies House ‘model articles’ will be provided by your company formation agent, which are suitable for the vast majority of UK limited companies.
Should these default articles not meet the needs of your new company – for example, if you need to issue more than one class of share or include pre-emption rights – it is possible to amend the articles accordingly or create bespoke articles. In such cases, professional advice is recommended.
Myth #14 – All personal and financial information will be made public
To ensure corporate transparency and reduce fraud, some personal and financial information will be made public when you register a limited company and become a director, shareholder, or person with significant control (PSC), but you can still protect your privacy.
Your full name, nationality, country of residence, and partial date of birth, are made public, but your home address will only be made available if you use it as a registered office or service address.
With regards financial information, most SMEs only need to publish unaudited abbreviated accounts. In general terms, the smaller the company – the less details require being disclosed.
Myth #15 – Incorporation always protects you from personal liability
Incorporating a limited company provides ‘limited liability’ to shareholders, as well as directors who are also shareholders. This means that your personal assets are protected and you are only liable for company debts up to the nominal value of your shares.
You are not protected if you provide a personal guarantee on a business loan, or sign a contract in your own name instead of the company name.
Furthermore, limited liability does not protect an individual who has acted fraudulently, with gross negligence, or with criminal intent. It is, therefore, advisable to safeguard yourself and your business with additional cover, such as Employers’ Liability, Public Liability, Professional Indemnity (PI), and Director’s & Officers insurance.