Memorandum and articles of association are required documents for all limited UK companies, and contain information about the business from share allocation to day-to-day responsibilities.
In this guide, we’ve covered the different steps required when setting up a limited company, as well as the information you’ll need to consider and provide during registration. An online application fee costs £12 and can be processed within 24 hours, whereas postal registration can cost up to £100 depending on how quickly you’d like to be registered. Ensure that you compare your business options before registering your business; here’s what you’ll need to know to make that decision.
What is a limited company (LTD)?
LTD businesses in the UK can come in two forms; limited by shares, and limited by guarantee. Both variations require registration with Companies House, meaning that your business information will be publicly available. All LTD businesses are separate entities from the owners, meaning that the company is liable for legal proceedings and debts rather than the individual(s) operating the business.
Limited by shares - often used to register companies that profit. Ownership of the business is allocated via shares, and shareholders are only liable for company debts up to the value of their share ownership. Any debt incurred that is greater than share ownership is the responsibility of the business, meaning that the personal assets of shareholders aren’t at risk.
Limited by guarantee - often used to register companies that are not for profit, such as charities, sports or social clubs. Company guarantors do not own shares of the business and usually do not withdraw any profits made. When setting up, guarantors will pay a sum towards any future debts the company may have. In the event that money is owed, guarantors are liable up to this sum, with any additional debts being the responsibility of the business itself.
Steps to set up a limited company
When setting up a LTD, business owners have several options; online, by post, via a formation agent, or through third-party software. In every scenario, there is certain information you’ll need to have prepared and ready to submit. Here are our steps on gathering all of the information you need when setting up a limited company:
1. Choose your business name
When registering a business, you must provide a unique name that doesn’t conflict with other registered companies or trademarks. In addition, it must include ‘Limited’, ‘ltd’, or if you’re operating from Wales, you may also use ‘Cyfyngedig’ and ‘Cyf’ instead.
Your registered name can be up to a maximum of 180 characters, but you’ll also need to bear in mind the use of ‘sensitive words’. These are words, phrases and expressions that Companies House requires additional approval to be used to prevent misrepresentation or conflict. As of 19/02/2020, there are 135 sensitive words you’ll need to be aware of when registering your business. If your business name includes a sensitive word, you’ll have to submit a letter of non-objection to the relevant governing body detailing why the use of this word is appropriate.
2. Appoint director(s) and company secretary
To form a limited company, Companies House requires that at least one director is appointed. You can have multiple directors with varying or equal share ownership, and you can also appoint a company secretary to relieve the directors of some responsibilities. Bear in mind the following for each role when setting up:
Company directors are legally responsible for certain elements of the business, such as those we’ve listed below. However, some responsibilities can be allocated to other employees, such as the company secretary, or outsourced, such as utilising an accountant to handle financial records.
- Are legally responsible for running the business.
- Must be aged 16 or over and without a director disqualification.
- Will have to provide an address specifically for directors correspondence (not the business address). This information will be publicly available on the Companies House website.
- Are responsible for ensuring company records such as reports of structural changes are maintained and kept up-to-date.
- Must ensure that company tax returns and financial records are provided as per HMRC rules and regulations.
- Need to pay corporation tax on the companies profits.
- Will be responsible for submitting their self-assessment tax return.
Company secretaries can be appointed at the point of company formation and changed at a later date by contacting Companies House. Company secretaries often take on administrative duties such as maintaining statutory books and reliving directors of some duties. Ultimately the role of a company secretary depends on the business itself, but here are some of the duties and things to consider:
- They’re considered ‘officers’, meaning they represent the business and have an active involvement in the day-to-day operations.
- Maintaining legal company information, such as registered shareholders, shareholder value, changes of ‘persons of significant control’ and updating changes in ownership, director appointment and secretaries.
- May be asked to complete the annual returns to Companies House.
- Often responsible for ensuring financial statements, legal documents and company information is kept safe and secure.
- Organise meetings and communicate directly with directors to guide business actions.
3. Shareholders, guarantors & people with significant control (PSC)
During the registration process, you’ll be required to assign company roles and define the type of limited company you’re forming, as well as information on the individuals involved, their responsibilities, and the decision-making power they have over a company.
If you’re registering your business as limited by shares, you must assign at least one shareholder during your application. If your company has multiple shareholders, you’ll have to assign a specific amount to each individual and inform Companies House of the type of share. This defines whether shareholders can receive dividend payments, redeem their shares, vote on company decisions, and the number of votes they hold.
If you’re registering your business as limited by guarantee, you must assign at least one guarantor during your application. Guarantors are responsible for leading the company and making important business decisions. They’ll have to pay a ‘guaranteed’ amount, which will have to be paid if the business controls debts. However, they are not liable for any debts incurred beyond this figure. For example, if you join as a guarantor with an agreed £1000 amount and the company incurs debts of £2000, you’ll only be liable to pay £1000, not the full amount.
You’ll have the option to assign a PSC during the signup process A person with significant control is someone holding 25% or more of the companies share, 25% or more in voting rights, or an individual with the right to remove and appoint directors. An officer, such as the company secretary, is required to collect the relevant information and inform Companies House when a change is made to PSC, and confirm no changes have been made if 12 months pass without an update.
4. Memorandum & articles of association
All registered companies within the UK require both a ‘memorandum of association’ and ‘articles of association’. These documents define rules about running the company such as company objectives, company name and date founded, dividend payments, share allocation and meeting arrangements. They must be agreed on and signed by all shareholders, guarantors, directors and company secretaries.
Memorandum of association
If you register your business online, your memorandum of association will be created automatically, with a prompt that all relevant parties sign and agree on the terms. If you opt to register by post, this template has been provided to help guide you. The information provided defines the company itself, such as the personal information of relevant people, the type of registered business and company name. Bear in mind that your memorandum of associated cannot be updated once it’s been registered, so check that the information you’re providing is accurate.
Articles of association
Articles of association focus on the operational rules of a company, such as the processes and requirements of changing company directors, allocating shares, resolving conflict, and so on. Fortunately, the UK Gov website provides articles of association for businesses to adopt as their own. Alternatively, you can create your own and provide them when registering your business.
5. Confirm and organise your records
The correct organisation and maintenance of records are of paramount importance. Failure to correctly record and provide information can lead to fines and the disqualification as a company director. Records should be kept at the same address your business is registered, however, if you do plan on storing them elsewhere, you must inform Companies House of your intentions to do so. Ensure that you have planned for and understand the importance of the following records:
Records that detail information such as:
- Company ownership and designated roles.
- Any business decisions made.
- The outcome of any voting that takes place.
- Outstanding loans and their repayment terms.
- Purchases or selling of shares.
- Any active loans and mortgages.
Your PSC records need to define who has significant control over the business. In the event that no PSC is assigned, your records must still reference this.
Records that detail information such as:
- Income and expenditure.
- Company assets, including any stock.
- Debts incurred by the company.
- Transaction history for goods bought and sold.
- The calculations and working documents used to produce accounting records.
As a general rule, all records must be kept for a minimum of 6 years. In some cases, you should keep your records for longer than the advised 6 years, such as if you make a large purchase with repayment terms spanning over greater than 6 years.
6. Address registration and company identification
One of the final two pieces of information you’ll need to provide are your registered business address and Standard Industrial Classification (SIC) code.
Registered business address - every limited company must provide a registered business address. This information will appear on Companies House and is readily available for the public to view. Your address will need to be in the same country you’re registering (i.e. a Welsh business will need a Welsh address). If you do not want your home or office address being used and available as public information, you can utilise the services of a virtual address provider granted that the address being used is a physical location (you might be interested in setting up a virtual business address).
SIC code - a code that categorises the type of goods or services that your business offers. The SIC code ensures that you’re correctly taxed on your goods, and it helps Companies House to understand your company's offering. Find your SIC code.
What are the benefits of setting up a limited company?
If you’re still unsure on whether setting up as a limited company is the right action for your business, below are some of the common benefits companies report as the reason they’ve set up in this way:
- Tax relief - directors can take dividend payments up to £12,500 without paying national insurance. This can be a more effective way to earn money through a business rather than through a salary. LTDs also pay 19% corporation tax, which is lower than the 20%-45% taxation range sole traders or partnerships are subject to.
- Liability - individuals within the company are not liable for the businesses finances such as debt. In the event that the business owes money, the directors’ personal assets such as their car or home aren’t at risk.
- Reserve your business name - as part of the registration process, you’ll need to provide a company name. This has to be unique, meaning that you can’t use a name already in use, and future businesses wouldn’t be able to use your registered name.
- Professional - businesses that are registered as limited companies can appear more professional and legitimate to potential customers or other entities.
- Exit strategy - if you have the end goal of selling your business, either in full or partly, you may find this is easier to do through the transfer of ownership of the businesses shares.
UK Postbox and setting up a limited company
UK Postbox offers virtual addresses and mail plans that allow people to manage their mail on the move. When you sign up, you’ll be provided with an address to use for your mail correspondence. When we receive mail for you, our advanced mail management app will notify you. From here, you can choose whether to scan and read the content, store or destroy the post.
We offer specific business address services that have been created to support businesses in the formation and management of their company. Our virtual business addresses are suitable to use as the following:
- Correspondence address
- Business trading address
- Registered office address
- Directors’ service address
This means that you can use one address for multiple functions within your organisation, rather than supplying or purchasing individual addresses depending on their usage. We also provide business support services such as banking and e-retail. If you’d like to talk to us about your company, contact a member of our business team.