If you want to set up a limited company in 2025, here are ten essential things you need to know in advance.
What’s in this guide?
There are several ways to set up a limited company
There are three main ways to form your company:
- Directly via Companies House, the registrar of companies.
- Via a formations agent, who will submit your application for you.
- Via another third party, such as an accountant, who will also process your application.
It’s surprisingly inexpensive, but the costs do vary
The costs vary; Companies House charges a fixed £50 fee if you apply online (the cost increased from 1st May 2024).
Formation agents can form your company if you’d rather not apply independently. They will check your details for any errors and answer any questions you may have.
Most accountants will set up a company for you. They will charge a one-off fee or do it for free if you also sign up as a client.
1. Choose a name for your company
Your first order of business before kickstarting the company registration process is to come up with a name.
This is how your company will be referred to on your incorporation paperwork, tax returns, invoices, and other official documents, so it’s crucial to spend some time choosing the right one.
You won’t be surprised to hear that Companies House has strict rules for naming your business.
Your registered name:
- Can’t be the same or too similar to another company’s name. You can check whether a name is available on Companies House’s company name availability checker
- Can’t be offensive or use ‘sensitive’ words without permission. Sensitive words include ‘accredited’, ‘assurance’, ‘co-operative’ and other words that, if used inappropriately, might give the impression that your business is something it isn’t
- Can’t be the same as a registered trademark
- Must include the word ‘limited’ or ‘ltd’
2. Decide whether to use a trading name
You can use a trading name in addition to your company’s registered name—the name your clients will know you by.
For example, your registered name could be Superior IT Solutions Ltd, but your clients could know your business as Genius IT Brain On Call.
That said, this is completely optional. Many businesses trade using only their registered name.
If you decide to use a trading name alongside your registered name, you must follow certain rules.
In particular, your trading name can’t:
- Be the same as an existing trademark
- Contain a ‘sensitive’ word without permission
- Include the words ‘limited’, ‘ltd’, ‘limited liability partnership’, ‘LLP’, ‘public limited company’, or ‘plc’
If you decide to use a trading name, the trading name and your registered name must appear on invoices, contracts, and other official company paperwork.
To use our previous example, if you trade as Genius IT Brain On Call but your company is registered as Superior IT Solutions Ltd, you should state on invoices, contracts, and other official paperwork that ‘Genius IT Brain On Call is a trading name of Superior IT Solutions Ltd’. Or words to that effect.
3. Choose a registered office address
The second most important order of business is choosing your registered address. This is where Companies House, HMRC, the pensions regulator, and other authorities will mail official correspondence.
The simplest option is to use your office or home address if you work from home.
Alternatively, many contractor accountants and third-party providers offer registered office services as part of their standard accounting packages or as a standalone service.
When selecting your registered address, keep in mind that it must be located in the same country as your company’s registration. So, if your company is registered in England and Wales, your registered address must be in England or Wales.
Similarly, if you’re registered in Scotland or Northern Ireland, your registered address must be within that country’s territory.
4. Appoint company directors
By law, every company must have at least one director, but you may appoint more than one.
Directors can be either individuals or limited companies. That said, at least one director has to be an individual. So, if your company only has a single director, that director can’t be a person.
Many contractors working through a limited company appoint themselves as their sole director.
You need to provide Companies House with a list of all the company’s directors, nationalities, birth dates, and addresses. If you’re uncomfortable sharing home addresses, you can use a service address, which can be the same as your company’s registered address.
In the past, you also had to appoint somebody to act as company secretary, but this is no longer a requirement.
5. Understand your duties as a director
Being a company director comes with serious responsibilities. The Companies Act 2006 — the UK’s company law — sets out seven key duties:
- To run the company by the rules set out in its memorandum and articles of association (more on these in a few paragraphs)
- To act in the company’s best interests.
- To exercise independent judgement and not be unduly influenced by others (though you can — and should — get advice when this makes sense).
- To do your best.
- To avoid conflicts of interest, that is, situations where your loyalties are at odds with what is best for the company. An example of a conflict of interest is owning shares in two companies that compete for the same clients.
- To decline gifts or benefits from third parties that could create a conflict of interest. If you accept a supplier’s offer to pay for your holiday at a five-star tropical resort, for instance, you might feel obligated to give them work even though they might not be the best people for the job.
- To tell the other directors of any situations where you’ll benefit personally from a business transaction. An example is if the company operates out of your premises and pays you rent.
- To act professionally and ethically.
If you fail in any of these duties, you risk being banned from being a company director for up to 15 years. You could also be fined or imprisoned if your actions are especially serious.
6. Work out the company’s share structure
Shares represent your ownership stake in the company. The number of shares you have determines:
- How big of a say do you have in the company’s decision-making
- The slice of company profits you’re entitled to
- How much of your own money will you lose if the company go bust? This will depend on the value of your shares. So, if your shares are worth £100, for instance, you’ll be on the hook for £100 if things go wrong.
You can split your company’s shareholding in three main ways.
Sole shareholder
The most straightforward arrangement possible is one in which you’re the only shareholder. This means you’re the company’s sole owner and entitled to 100% of the profits, and it makes sense if you’re the only one working in the business.
Split the shares
Alternatively, you could split the shares between you and your business partners or you and your spouse.
Here, dividends—the company’s profits—are distributed in proportion to each shareholder’s holding. So, if you want to distribute a dividend of £10,000 and you have four shareholders, each owning 25% of the shares, for instance, each shareholder will get £2,500.
Making your spouse a shareholder can make sense even if they’re not involved in the business, because it can enable you to get paid more tax-efficiently.
If your spouse pays tax at a lower rate than you do, for example, because they earn less than you or don’t work, splitting the dividend means you pay tax on part of it at a lower rate than you would if you took it all out yourself.
For this technique to be legal:
- You must be married and living together
- The shares must be ordinary shares. In other words, they give your spouse the same rights and responsibilities as you
Different share classes
The third way to split your shareholding is to create different classes of shares, each giving their holder a specific set of rights. There are three main types of shares:
- Ordinary shares, which we’ve just touched on. These are the most common type of shares and they give the holder all the rights and responsibilities of a typical shareholder.
- Preference shares. These typically provide holders with special benefits, such as a higher percentage of the company’s profits, but exclude them from participating in decision-making. They can be useful if you want to raise capital without giving away control of your business.
- Management shares. These give the holders more power, such as greater voting rights.
It’s worth having a chat with a good contractor accountant, so they can advise you on the best share structure for your business.
Whatever you decide, you’ll need to provide Companies House with each shareholder’s:
- Name
- Address
- How many shares they’ll own
- The share class
- Three other pieces of personal information. These could be their passport number, their national insurance number, the last three digits of their phone number, or some other piece of personal information
You’ll also need to keep a record of people who have ‘significant control’. This is anyone who owns more than 25% of the shares or voting rights.
You’ll need to update the information every year by filing a confirmation statement. The confirmation statement is due even if this information hasn’t changed.
7. Decide how your company will be run
Two key documents govern how limited companies are run:
- The memorandum of association
- The articles of association
The memorandum
The memorandum of association establishes the company and sets out its objectives and purpose. It contains:
- A declaration of the shareholders’ intention to form a company. The shareholders are usually referred to as ‘subscribers’
- The company’s name and registered address
- A list of the shareholders
- The number of shares the company has issued, how much they’re worth, and how many more shares the company can issue
- The nature of the company’s business
You can download a template memorandum from the government’s website, but there’s no need to file it if you register your company online. Instead, you can simply enter the details of each shareholder. Once you’re done, ticking a checkbox confirms you’ve authenticated the memorandum in the prescribed form.
The articles of association
These are the company’s bylaws, and they set out detailed rules for every aspect of running the company — from what powers the directors have to how voting takes place and how dividends are distributed.
Most contractors use the government’s model articles of association — a generic document that fits most standard companies. But you’re free to use your own amended articles if you prefer.
The catch is that, if you use amended articles, you won’t be able to register your company online. You must fill out Form IN01 and send everything to Companies House by post.
8. Choose a SIC code for your business
SIC codes — SIC stands for standard industrial classification — are a system of numbered codes.
Every industry and trade has one or more unique SIC codes assigned to it, and government authorities use them to group similar businesses together for statistical purposes.
In most cases, one SIC code is enough to accurately describe what your company does, but you can choose up to four. As a contractor, the following codes, taken from section J of the full list, are likely to be the most relevant to your business:
| SIC Code | Description |
|---|---|
| 62012 | Business and domestic software development |
| 62020 | Information technology consultancy activities |
| 62030 | Computer facilities management activities |
| 62090 | Other information technology service activities |
| 63110 | Data processing, hosting and related activities |
If you pick the wrong code by mistake or pivot your business, you can change it by filing a confirmation statement.
There’s no need to do this straight away. You can file the confirmation statement with the new SIC code on the date it’s due.
9. Don’t forget to take care of other formalities
Setting up a limited company has many moving parts. Alongside registering with Companies House, you’ll also need to register for:
Corporation tax
To register for corporation tax, set up a Government Gateway account. You’ll need your UTR — unique taxpayer reference — to do this. HMRC should send it to you within 14 days of registering your company.
Once you’re logged in, choose ‘Add a tax to your account’, then corporation tax and fill out your company’s registration number and the date you started doing business.
You have up to three months from the date you registered your company to register for corporation tax.
PAYE
You’ll need to register for PAYE to pay out your salary and the salary of any other employees.
First, register as an employer. You’ll need to do this even if you’re the only person who’ll be working through the limited company.
Next, log on using your Government Gateway account, click ‘add a tax to your account’, then ‘PAYE for employers’.
Pension auto-enrolment
As an employer, you’re obliged to take part in automatic enrolment. This entails setting up a workplace pension, deducting contributions from staff members’ salaries, and making the minimum employer contributions required by law.
These rules apply even if you’re your company’s only employee, and you risk a fine if you don’t do it.
That said, if you’re the sole director and employee — or there is more than one director but no employees — you can apply for an exemption.
The advantage of this is that you won’t have to participate in automatic enrolment but can still set up a pension of your choosing.
We’ve written about the benefits of doing this in more detail here.
VAT
While you don’t need to register your company for VAT straight away — the current threshold is a turnover of £90,000 in the last 12 months — it’s worth keeping it in mind.
The requirement to register for VAT kicks in as soon as you know that your turnover will go over the threshold within the next 30 days. So keep an eye out on your income to make sure you’re not caught out.
10. It’s worth getting expert advice
While you can register a limited company online, it’s a good idea to speak to an accountant, especially if there will be several directors or a complex shareholding structure.
A good contractor accountant can advise you on the best way to set up your company and take care of the registration and setup formalities, so nothing falls through the cracks.
More importantly, they’ll help you operate tax-efficiently, keep your books in order, and stay on HMRC’s good side.
Do bear in mind though, that the costs can vary. See the table below for some examples:
| Accountant | Cost | Key Features |
|---|---|---|
| Aardvark Accounting | £89 | Free company formation + FreeAgent. |
| Integro Accounting | £125 | EasySwitch between limited and umbrella. |
| Clever Accounts | £104.50 | Free company formation + IR35 FLEX solution – for any contract. |
| SG Accounting | £119 | Free company formation + free tax return. |
| You can compare the monthly fees of over 30 accountants here. | ||
Some contractor accountants include company registration services in their monthly packages. Others will charge a one-off fee plus Companies House’s registration fee (£50, effective from 1 May 2024).
Alternatively, check out our comprehensive list of 30+ contractor accountants to compare fees and costs and their ongoing accounting services for contractors.
If you want to use a formation agent, we’ve worked with 1st Formations for many years. You can set up a new company for £52.99 here.
Setting up a limited company – 20 FAQs
Can I delay my company’s official start date after forming it?
No — the date of incorporation is set automatically once Companies House approves your application. You can’t backdate or future-date this. If you want to delay trading, you can incorporate but remain dormant.
Can I reuse the name of a company I previously dissolved?
Yes, but only if the name hasn’t already been taken by someone else. Once a company is struck off, its name becomes available again after a short period — but you can’t reserve it without re-registering.
Can I reserve a company name before I’m ready to incorporate?
No, Companies House doesn’t offer name reservations. The only way to secure a name is to incorporate a company with that name — even if it remains a dormant company.
Do I need a Government Gateway ID before incorporating?
No — you don’t need one to form the company itself. But you’ll need to create a Government Gateway account soon after to register for Corporation Tax, PAYE and other taxes.
Can I form a company without a UK bank account?
Once you’ve formed your company, you can open a limited company bank account. The company must have its own account as it’s a distinct legal entity. Take a look at some of the leading business bank accounts here.
Can I use a virtual office as my registered address?
Yes — as long as it’s a physical address in the UK where official mail can be received. Many contractors use an accountant or registered address service for privacy reasons. Find out more about your official address options here.
Can a limited company be formed with no shareholders?
No — at least one shareholder is required by law at the point of incorporation. The same person can be both the sole director and sole shareholder.
Can I use a different service address for each director?
Yes — each director can have a different service address, as long as it is in the UK and not a PO box. This provides for privacy and is highly recommended.
Do I have to submit share certificates when forming the company?
No — Companies House doesn’t require you to submit share certificates. But you are legally required to issue them to shareholders and keep copies in your statutory registers. Find out more about shares and shareholders here.
Can I have more than one SIC code when I register?
Yes — you can list up to four SIC codes when you form a company. This is helpful if your company has more than one line of activity, e.g. consultancy and software development.
What happens if I use a restricted or sensitive word in my company name?
Companies House will reject your application unless you supply supporting documentation showing you have permission to use the word. Some words require approval from professional or government bodies. Read more about choosing a company name here.
Can a company be limited by guarantee and still trade?
Yes — but companies limited by guarantee are typically used for non-profit organisations. For this reason, almost all contractors set up limited companies limited by shares.
Do I need to provide ID when forming a limited company?
Not directly to Companies House — but most formation agents and banks will require ID checks as part of anti-money laundering regulations. This usually includes a photo ID (passport, driver’s licence) and proof of your residential address.
Is it mandatory to use the model articles of association?
No — you can submit your own bespoke articles of association, but if you do, you must file your application by post using form IN01. All online applications use model articles supplied by Companies House, which suffice for most businesses.
What personal information must shareholders provide?
You’ll need to provide each shareholder’s name, address, shareholding, and three pieces of personal information (e.g. NI number or mother’s maiden name) to verify their identity.
Can I form a company with different share classes?
Yes — you can specify different share classes at incorporation, such as ordinary or preference shares. Your share structure must be laid out in the company’s articles and statement of capital.
Is there a minimum share capital required?
No — you can incorporate a company with just one £1 share. Many small companies have 100 £1 shares, as this amount is easy to divide, between spouses, for example. There’s no minimum capital requirement for private limited companies in the UK.
Do directors need to live in the UK?
No — there is no UK residency requirement for company directors. However, a UK-registered address is still needed for each director’s service address.
Can I edit director or shareholder details after formation?
Yes — you can update director or shareholder details at any time using the Companies House web filing service. Don’t forget that some changes require board approval or resolutions, so check with your accountant if you’re unsure.
What’s the fastest way to form a limited company?
Applying directly online via Companies House is usually the fastest — often same-day, within a few hours. Formation agents who act as intermediaries should be able to process incorporations within a similar timeframe.
