How to Set Up a Limited Company

At Towerstone Accountants we provide specialist limited company accountancy services for directors and owner managed businesses across the UK. We created this webpage for people running a company who want clear answers on tax, payroll, Companies House duties, and day to day compliance without jargon. Our aim is to help you understand your responsibilities, reduce the risk of penalties, and know when to get professional support.

Setting up a limited company is often described as quick and easy and from a purely administrative point of view that is true. You can register a company in the UK in a single day. In my experience however many problems arise because people confuse setting up a limited company with setting up a limited company properly.

A limited company is a legal structure that comes with responsibilities choices and long term implications. The decisions you make at the start affect how you pay tax how you take money out of the business how flexible the company is in the future and how easy it is to stay compliant.

In this guide I want to walk you through how to set up a limited company in the UK step by step. I will explain not just what to do but why each step matters and where I see people make mistakes. This is written from the perspective of someone who deals with limited companies daily and sees the consequences of rushed or poorly thought through setups.

By the end you should understand how to form a company correctly and how to put the foundations in place so it runs smoothly from day one.

What a limited company actually is

Before setting one up it is important to understand what a limited company is.

A limited company is a separate legal entity. This means

• The company exists independently of you
• The company owns its money and assets
• The company is responsible for its debts
• You act as a director and possibly a shareholder

This separation is what gives limited liability but it also creates legal and tax obligations that do not exist for sole traders.

Deciding if a limited company is right for you

Setting up a limited company is not always the right choice. It works best when

• You expect to make consistent profits
• You want flexibility in how you pay yourself
• You are comfortable with compliance requirements
• You plan to grow or reinvest

For very small or short term activities a sole trader structure may be simpler. The decision should be based on facts not assumptions about tax savings.

Choosing a company name

The first practical step is choosing a company name.

Your chosen name must

• Be unique or sufficiently different
• Not be misleading
• Avoid restricted words unless permission is granted

You can trade under a different business name later but the registered name is what appears on legal documents.

Simple names with no restricted terms are approved fastest.

Deciding who will be involved

Every limited company must have at least

• One director
• One shareholder

The same person can fill both roles.

Directors are responsible for running the company. Shareholders own the company. These roles are legally different even if held by the same person.

Understanding the role of a director

As a director you are responsible for

• Ensuring accurate records are kept
• Filing accounts and tax returns
• Acting in the best interests of the company
• Complying with company law

These duties exist from day one. Lack of knowledge is not a defence.

Deciding on shareholders and ownership

Shareholders own the company and receive dividends if profits are distributed.

You need to decide

• Who will own shares
• How many shares will be issued
• Whether there will be more than one share class

For many single owner businesses this is straightforward but it becomes important later if you involve family members or investors.

Share structure and flexibility

The simplest setup is one share owned by one person. This works but it limits flexibility.

More flexible structures may involve

• Multiple shares
• Different classes of shares
• Shares held by spouses or family

These decisions affect dividends control and future planning so they should not be rushed.

Registered office address

Every limited company must have a registered office address.

This address

• Appears on the public register
• Must be a physical UK address
• Is where official post is sent

Many people use their home address initially but this does mean it becomes public information.

Setting up the company with Companies House

Once the key decisions are made the company can be registered with Companies House.

To register you provide

• Company name
• Director details
• Shareholder details
• Registered office address
• Share capital information
• People with Significant Control details

If everything is correct the company is usually incorporated within hours or a day.

What you receive after incorporation

Once registered you will receive

• A certificate of incorporation
• A company number
• Confirmation of registered details

At this point the company legally exists.

However this is just the starting line not the finish.

Setting up statutory company records

From day one the company must keep statutory records.

These include

• Register of directors
• Register of shareholders
• Register of People with Significant Control
• Records of share issues and transfers

These are legal records that must be kept up to date even in small companies.

Opening a business bank account

One of the most important next steps is opening a company bank account.

A limited company should always have its own bank account. Mixing personal and company money creates tax and accounting problems.

Opening a bank account can take

• A few days
• One to two weeks
• Occasionally longer

Banks carry out identity and anti money laundering checks so delays are common.

Can you trade without a business bank account

Technically yes but in practice it is a bad idea.

Using personal accounts leads to

• Director’s Loan Account issues
• Poor record keeping
• Confusion over ownership of money

It is far easier to wait until the account is open.

Registering with HMRC for Corporation Tax

Once the company starts trading it must register with HM Revenue and Customs for Corporation Tax.

This must be done within three months of starting to trade.

Trading can begin before you receive money. Issuing invoices advertising or buying stock can all count as trading.

Setting up payroll if you will pay yourself

If you plan to pay yourself a salary the company must register as an employer.

This involves

• Registering for PAYE
• Setting up payroll software
• Deciding on pay levels

This step often takes one to two weeks and should be planned early.

Deciding how you will pay yourself

One of the key advantages of a limited company is flexibility in remuneration.

Most owner directors use a combination of

• Salary
• Dividends

The right balance depends on profit levels and personal circumstances. This decision should be revisited regularly not set once and forgotten.

VAT registration considerations

VAT registration is required once turnover exceeds the threshold but some companies register voluntarily.

VAT registration can take several weeks and may involve additional checks.

You should consider

• Whether registration is required
• Whether voluntary registration is beneficial
• Which VAT scheme is appropriate

Registering late or incorrectly creates costly problems.

Setting up accounting systems

Good record keeping should start from day one.

This includes

• Choosing accounting software
• Setting up categories correctly
• Keeping digital copies of invoices and receipts
• Reconciling the bank regularly

Trying to fix records months later is far harder than doing it properly at the start.

Director’s Loan Account awareness

Even in the early stages money may move between you and the company.

This includes

• Putting personal money into the business
• Paying expenses personally
• Taking money out before pay is set up

These movements are tracked through a Director’s Loan Account. Understanding this early avoids problems later.

Insurance and compliance requirements

Depending on your business you may need

• Employers’ liability insurance
• Public liability insurance
• Professional indemnity insurance
• Industry specific licences

You should not trade without required cover in place.

Setting up contracts and documentation

Even small companies benefit from basic documentation.

This may include

• Client terms and conditions
• Supplier agreements
• Engagement letters
• Privacy policies

Clear documentation reduces disputes and supports professionalism.

Common mistakes when setting up a limited company

Over the years I see the same mistakes repeatedly.

These include

• Rushing incorporation without planning
• Choosing an inflexible share structure
• Mixing personal and company finances
• Delaying HMRC registrations
• Ignoring record keeping
• Assuming software handles everything

These mistakes are avoidable with a little preparation.

Using an accountant or adviser early

Getting advice early does not necessarily cost more. In many cases it saves money and stress.

An accountant can help with

• Choosing the right structure
• Setting up pay efficiently
• Avoiding common traps
• Explaining responsibilities clearly

Fixing mistakes later is always more expensive.

How long the full setup really takes

In practice a realistic timeline looks like this

• Day 1 company incorporated
• Week 1 bank account application submitted
• Week 1 to 2 Corporation Tax registration
• Week 2 to 4 bank account opened
• Week 2 to 6 PAYE and VAT setup if needed

This means while the company exists quickly full setup usually takes a few weeks.

When you are truly ready to trade

You are in the best position to trade when

• The bank account is open
• Tax registrations are underway
• Record keeping systems are in place
• You understand how to pay yourself

Trading before this often creates unnecessary clean up work.

Final thoughts from experience

Setting up a limited company is easy. Setting one up well requires thought.

The formation itself is only a small part of the process. The real work is deciding how the company will operate how money will flow and how compliance will be handled.

From experience the smoothest limited companies are those where directors slow down slightly at the start and get the foundations right. Doing so makes everything else easier from paying yourself to dealing with HMRC to growing the business with confidence.

A limited company is a powerful structure when used correctly. Setting it up properly is the first and most important step.

You may also find our guidance on how long does it take to set up a limited company and how much does it cost to form a limited company helpful when exploring related limited company questions. For a broader overview of running and managing a company, you can visit our limited company hub.