How to Set up a Limited Company

For centuries, the economies of Western nations have been built on the concept of limited liability. The relative security the limited liability company offers in the otherwise turbulent commercial world encourages entrepreneurship and the development of new businesses. With the advent of the Companies Act 2006, it has become even simpler to set up a new limited company than ever before.

How to set up a limited liability company

Forming a limited liability company is easy under the Companies Act 2006. Photograph ©2006 Richard Croft. Licensed for reuse under this Creative Commons Licence

What is a Limited Company?

At its simplest, a limited company is a commercial (or, sometimes a charitable or not-for-profit) organisation that can take advantage of limited liability. Limited liability is the idea that a person’s liability for the debts of a company are limited to the amount they have either already paid into the company in exchange for their shares, or the amount they promised to pay to the company in exchange for their shares, if they have yet to fully pay for said shares.

How to Form a Limited Company

The Companies Act 2006 has streamlined the process for forming a limited company. The application process begins when form IN01 is completed and sent to Companies house along with:

  • a Memorandum of Association for the new company;
  • a set of Articles of Association for the company (although see below for more details on this); and
  • the application fee.

At the time of writing, the application fee is twenty pounds if the form and supporting documents are sent by post, or fifteen pounds if the application is submitted via the Companies House website.

What is a Memorandum of Association?

The company’s Memorandum of Association is basically a document that states those forming the company agree to become members of it, taking at least one share in the company each, and that it is their intention to form a limited company under the 2006 Act. In essence, it is a statement of intent and becomes a mostly historical document once the company is formed.

The 2006 Act requires that the memorandum be in the form laid out in Schedules 1 and 2 of the Companies (Registration) Regulations 2008.

What are Articles of Association?

A company’s Articles of Association can be seen as its constitution. They set out the company’s working practices with regard to the decision-making process for shareholders and directors. They determine whether there are special rules for share trading, election of directors and many other topics the members deem relevant to the smooth operation of the company.

Under the 2006 Act, all companies must have a set of Articles but need not submit a custom-written set if the Act’s Model Articles are sufficient to fit the company’s needs. Where the Model Articles mostly fit the company’s needs but certain additions or alterations are required, it is sufficient to submit only those special articles that are required.

The Model Articles are currently found in the Companies (Model Articles) Regulations 2008.

The Companies Act 2008 has made the formation of a new limited company as hassle-free as possible. With this streamlined process it is possible to set up a limited company quickly and enjoy the advantages that limited liability has to offer a new business right from the outset.

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