Lots of us find the prospect of managing the paperwork involved in running a limited company a bit daunting... potentially off-putting.
But it needn't be that way.
A limited company business model can bring huge benefits for business owners, including...
helping to reduce personal risks (by protecting owner/shareholders' personal assets)
generally lowering tax liabilities
opening up a raft of 'force for good' tax reliefs – which often mean money coming back into the business from HMRC
increasing the efficiency of owner remuneration
enhancing financing options
making scaling up, business model pivots and recruitment far easier
If you want to take a deeper dive into the benefits listed above, take a look at Farillio's superguide: which business model is right for you?, where we explain what running a limited company involves compared to other business models.
Of course, there could, of course, be good reasons for not running your business as a limited company. In fact, for some businesses, like doctors, dentists and vets, the law may dictate what model they use – and for them, if they're teaming up with others to run their practice, their ideal vehicle’s going to be a partnership model, not a limited company.
If you're already clear that a limited company model is right for your business, let's look now at how we can make the administrative side of running a limited company a whole lot easier.
And because there's nothing like getting the real picture from the best experts, we've collaborated on this guide with some of our experienced expert partners, at the Stanley Davis Group Limited, who help tens of thousands of limited company owners manage their admin needs and obligations every year.
Setting up a limited company
Farillio has a step-by-step video tutorial guide on setting up a limited company and we recommend that you start there.
There's a fair amount involved in this exercise – much of it comes down to practical decision making on your part and getting to grips with the benefits and opportunities that limited companies bring for business owners – so that you can optimise these for yourself.
Below, you'll find a quick summary of the documentation and key considerations involved in setting up a limited company.
If you're already up and running with your limited company, just skip to the next section of the guide using our left-hand navigation bar.
1. A clear view of who will be your directors and shareholders
You'll need this detail to fill in the essential set-up paperwork.
A quick word on co-founder agreements
If you're a co-founder, and there will be other directors and owners of your limited company, then before you form your company, you may well want to agree a co-founder agreement.
You can use Farillio's template co-founder agreement. This will help you identify many of the key decisions on ownership, liability, daily responsibilities, etc., that you should be making ahead of formalising your company.
One of the biggest factors causing the failure of too many startup businesses is the lack of clarity up front on who will do what within the business, and the expectations of the co-founders as that business progresses.
Co-founder agreements help you to nail that down and have the awkward conversations at the outset.
Any co-founder agreement you put in place should be consistent with what you ultimately adopt in your articles of association, (see below) and, eventually, you'll find that your articles – and potentially also your shareholder agreement (see also below) – will supersede this co-founder agreement.
But when you're starting out, and before you've got everything in place, co-founder agreements can be invaluable.
Shareholders with different rights
If you're planning to give any of your owner/shareholders enhanced (or restricted) rights in your new business, you'll need to take expert advice on your articles of association (see below) and ensure that you're properly reflecting these in your new company's constitutional documentation.
If you're planning to take advantage of the government's investor incentive schemes (e.g. Seed Enterprise Investment Relief and Enterprise Investment Relief), so that you can offer shares in your company that enable your investors to claim 30-50% tax relief on the money that they invest in you, you'll also need to take tax advice in relation to any enhanced rights that you might want to offer your shareholders.
Some variations to share rights can invalidate your eligibility to offer these incentives to investors.
Take a look at our guide to SEIS and EIS relief for more background on how these brilliant investor-incentive schemes work – and how to apply for them.
2. Form IN01
This official form must be completed and submitted to the UK's registrar of companies, Companies House.
It contains key set-up information including the name of the new company, what it will do, the address to which all official correspondence should be sent, who will be the director(s) and their personal contact details, etc.
It is mandatory. You cannot register a UK company without this form.
For guidance on how to complete this form, see Farillio's video tutorial on setting up a limited company.
These form your new company's rule book and cover things like how meetings are held, how directors will pass decisions, etc.
You can use Farillio's template articles of association, which takes the standard model articles of association that Companies House will otherwise offer you, and improves on them – including by giving you more flexibility in your director-decision powers.
4. Board resolutions, form SH01 and share certificates
Farillio's guide to setting up a limited company covers the detail relating to each of these in turn, and you can use our templates to assist you.
If you're a sole director and shareholder of your new business, you'll need our first ever board resolution of a sole director template.
Otherwise, you can use our board resolution to set up a limited company.
The guide notes to each of the above templates will also talk you through any other forms or actions you might need or want to take.
For anything that you create off the platform, like one of the Companies House forms, you can simply load it on to your dashboard when you're done – so your Farillio account will always have the record of what you've created.
Recommended order of steps
You can work through the above forms and documents in the order set out above. The process is not especially complex and the cost of registering is very modest, especially if you do it online.
Allocating signing authority to someone in your business
You may want to do this, for example, where you've appointed co-directors and it makes sense for you each to have the power to make contracts on behalf of the company.
Equally, there may be some decisions that you wish to delegate to other members of your team, where you set defined boundaries around what can be signed off.
It's important to be clear on who may commit your business to contractual or financial obligations especially. So ensuring that there is a record of who is authorised to do what, and how that authority has been granted, or may be revoked (and in what circumstances), matters.
Proposing the signing authority for one or more named individuals.
2. A cross check on the articles of association
To ensure that the board has the power to grant this power to other staff members without needing, for example, shareholder consent or revisions to the board's current authorities.
Recording the outcome of the decision and details of any agreed signing authority/ies.
4. A completed bank mandate and the bank's agreement to permit another member of staff this power
If relevant (because the individual will have financial powers, including the ability to draw on funds in the company's bank account.
The bank must agree. The directors will not have full control over this decision. For most businesses, it is, however, more a formality than an issue.
(See more background to this in the 'recommended order of steps' section immediately below.)
5. Draft letter to the authorised signatory/ies ready to inform them of the extent of their signing authority/ies
This can be sent as you prefer, but it should be kept on file with all other official company matters.
Recommended order of steps
If you follow the steps set out above, and ensure that if banking powers are to be included, you've formalised that mandate with your bank, then you should be in good shape to confirm to your authorised signatory that they can start signing on your behalf.
Appointing a director (including a non-executive director)
Under UK law, there's no difference in approach for the appointment of an executive or a non-executive director. So you can use the same approach to appoint, or remove, each type.
Both must be entered on (and, as relevant, updated and/or removed from) the register of directors at Companies House.
Executive directors are those charged with the daily management of the business.
Whereas non-executive directors typically play a far less hands-on role. They tend to be involved in giving more specialist or niche support to the business from time to time. But they remain liable for the responsible running of the business and are usually entitled to see all aspects of the company's business, including its financial position.
Proposing the appointment.
2. A cross-check on your articles of association
To ensure that the board has the power to appoint another director without needing, for example, shareholder consent or revisions to the board's current authorities.
3. A cross-check that the director does not have any conflicting interests
For example, relationships with competitors that might derail an appointment or require shareholder approval ahead of you being able to action it.
Article 7 of our template articles of association cover this off to some extent.
Recording the outcome and any relevant details.
Agreeing to accept the appointment.
6. Form AP01
Officially recording the appointment on the register of directors at Companies House.
Order of steps
Step 1: Check if you have the authority to make the appointment outright
First of all, check your company's articles to ensure that the board has the authority to make another appointment.
It's possible that you might need shareholder permission to make the appointment. If you need to get shareholder permission, you should be able to produce and circulate propose a written ordinary resolution to gain this consent.
Farillio's template articles of association permit directors to appoint another director shareholder without consent.
If you do need consent, our template proposed ordinary written shareholder resolution will help you with this – and the guide notes will talk you through the time frames and steps you'll need to take here.
Step 2: Get it on the agenda
Assuming you have the authority you need, either add the proposed appointment to your next board meeting agenda, or create a separate one if you want to make the appointment ahead of the next board meeting.
Alternatively, you can simply agree to make the appointment in writing and without an actual board meeting being held.
If you prefer not to hold a meeting to discuss the appointment, you can simply circulate the board resolution in draft, request the agreement of the other directors, in writing, by return; and then once you have this, you can finalise the resolution.
Step 3: Make sure you have the intended director's consent
A letter of consent from the intended director is needed. You can provide your intended director with Farillio's template letter for these purposes.
You should have met with the intended director first, to explain the role and what it entails. Directors who are appointed to the board of a company carry certain duties and liabilities, and you should check that your candidate is aware of these and is content to accept them.
Farillio's guide to directors and their duties and liabilities should help here too.
Step 4: Fill in and file form AP01
Complete the Companies House Form AP01 with the detail of the new appointment.
You can file this via the online service – or on paper if you prefer.
Most people file online these days, and there's no fee to do so.
Step 5: Update your internal register of directors
Every company must keep a register of directors. Every appointment and every termination of appointment needs to be recorded in this register, along with key details relating to that director.
The details required by law to be kept include:
- the director's full name
- any former names (including maiden names)
- an address for service (where official correspondence relating to the directorship for the company should be sent – often it's the company's registered address)
- the director's residential address
- the country where the director is usually resident
- the director's nationality
- the director's business occupation
- their date of birth
Step 6: Don't forget the contract and supporting materials
Finally, you'll want to get the new director to sign their service contract. You can use Farillio's template director's service contract.
If they're new to the business, then to be legally compliant, you'll need to ensure that you've provided them with a copy of your employees, contractors and workers privacy notice informing them how you handle their personal data, your staff handbook containing all the policies and details of the various processes that your business applies to it daily operations and staff, and you'll probably already be on top of your plans to induct them and get them up and running as rapidly and smoothly as possible.
If they've been promoted from within your business, you may still want to set some performance targets or expectations around their transition into this new role.
Step 7. Have a plan to communicate the appointment
You may want to have a communications plan (even if it's just a few carefully written sentences that you share on an email) to help you announce the promotion to other members of the team – ensuring as far as possible that your staff see the promotion as a positive development, so that any relevant reporting structures and the overall cultural integrity of your business is maintained.
Step 8. Check whether you need to increase any insurance cover
Don't forget also to review whether you may need to increase your 'key person insurance' policy.
See our guide to financial planning 101 for more information about how valuable this particular cover can be when someone is stepping into a very key role within your business.
You may also need to review whether, given this new appointment, other insurance policies remain at appropriate premium levels as well – as some policies are calculated on the number of staff you have in your business.
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