Setting up a limited company in the UK: Step-by-step guide

Introduction

Setting up a limited company in the UK is a significant milestone that can bring long-term benefits if approached properly. Incorporation gives you limited liability, a more professional image, and the flexibility to manage profits in a tax-efficient way as your business grows.

However, incorporation also comes with essential responsibilities. The same framework that protects you legally also requires accurate record-keeping and ongoing compliance. For some founders, this structure brings clarity and stability; for others, it may feel like extra admin. Regardless, these duties are a necessary part of running a legally sound company.

Moving beyond a side hustle? Launching your first venture? Laying foundations for serious growth? This 11-step guide walks you through each stage of the process in plain English.

1. Decide if a limited company is the right structure

Setting up a limited company has advantages, but it isn’t the only option. The first step is to decide if it’s the best structure for your situation.

A sole trader setup is straightforward: you register with HMRC, file a Self Assessment tax return, and continue operating. It’s quick, light on admin, and often the best option if you’re testing the waters. But you and the business are legally the same entity. Any debt, claim, or liability lands directly on you, including your personal assets.

A limited company, by contrast, creates a separate legal identity. It can own property, sign contracts, and take on debt in its own name. That separation protects you personally, and it also adds credibility with clients, suppliers, and investors. If you’re pursuing larger contracts or seeking funding, being incorporated is a clear indication of your seriousness.

Tax is another factor. As a sole trader, profits are taxed as personal income. As a company, profits are subject to Corporation Tax, and you decide how to pay yourself (salary, dividends, or both). At higher profit levels, this flexibility often works in your favour.

So, ask yourself: are you still experimenting, or are you committed to building something that will grow? If it’s the latter, starting as a limited company can save the pain of switching later.

2. Choose a company name

Your company name is your legal identity, the banner under which you’ll sign contracts, and the first impression many customers will have. That makes it both a legal requirement and a branding decision. On the legal side, Companies House requires that your name:

• Is unique – i.e. not the same as, or too similar to, an existing company
• Ends in “Limited” or “Ltd”
• Avoids restricted words like “bank” or “association” unless you have approval

However, beyond legality, remember that a good name is clear, professional, easy to spell, and adaptable across your website, email, and social media platforms. If customers struggle to spell or search for your company name, they’re less likely to find or trust your brand. That’s why it’s worth checking domain and social media availability before you settle.

3. Choose a registered office address

Every UK company is required to have a registered office, which serves as the official point of contact for HMRC and Companies House. It must be a physical UK address (not a PO box), and it will appear on the public record.

That means if you use your home, your personal address becomes searchable by anyone. For privacy and professionalism, many founders use a registered office service instead. These services provide a central London or regional business address, forward mail to you, and often scan documents for digital delivery.

This matters more than it first seems. Important letters include tax notices, filing reminders, and even legal documents. Missing one can cause penalties. A professional service ensures those communications are handled correctly while keeping your personal details private.

4. Appoint your director(s)

A limited company must have at least one director. The director is legally responsible for keeping the company compliant: filing accounts and returns, paying taxes, and maintaining records. You can appoint yourself as sole director, or bring others on board, as long as they’re at least 16 and not disqualified from holding the role. Even if you work with an accountant, the legal responsibility always rests with the directors themselves.

If you’re starting with co-founders, think carefully about appointments. Making someone a director gives them both authority and responsibility: it can be a positive way to share the workload and accountability, but it also means sharing the legal duties that come with the role.

5. Allocate shares and name shareholders

Every company must issue at least one share to at least one shareholder. In the simplest setup, you act as both sole director and sole shareholder, which means you own 100% of the business and retain full control.

When partners or investors come on board, that ownership needs to be divided. Most small companies keep things straightforward by issuing 100 ordinary £1 shares. This makes percentage splits easy to calculate (for example, 25 shares each if four founders are involved, or 60/40 if one person is taking a larger stake).

However, shares also determine who has a say in company decisions and how much influence each shareholder has. If you have multiple shareholders, establish a shareholder agreement from the start. This agreement covers what happens if someone wants to leave, sell their shares, or if a dispute arises – issues that can derail even strong partnerships if left unaddressed.

6. Prepare incorporation documents

To complete your company formation, you’ll need to provide two core documents. Together, they act as the “constitution” of your business, setting out its existence and the rules by which it will be run.

• Memorandum of Association: a short statement signed by all initial shareholders, confirming their agreement to form the company.
• Articles of Association: the rulebook for how the company operates, outlining director powers, shareholder rights, and decision-making processes.

Most small businesses use the “model articles” provided by Companies House, which are designed to cover standard situations. Custom articles are only necessary if you have more complex requirements, such as multiple share classes or specific governance arrangements.

7. Register with Companies House

Once you’ve settled the essentials (company name, registered office, director(s), shareholder(s), and incorporation documents), you’re ready to register the company itself. This is the formal act of bringing your business into legal existence. There are three ways to register.

1. Registering online via Companies House

Registering online with Companies House is the most cost-effective and direct option. However, the digital incorporation fee doubles on 1 February 2026, from £50 to £100. Applications are usually approved within 24 hours. It’s quick, but the process is very DIY. You’ll need to enter all your details correctly. If there’s a mistake, the application will be rejected, and you’ll have to start again.

2. Registering by post

Postal applications use form IN01 and the standard registration fee is £71, paid by cheque. The downside is speed: processing can take up to 10 working days, and you won’t know about errors until much later. It’s usually chosen only if you need to supply bespoke documents that can’t be filed online.

3. Registering through a formation agent

Using a formation agent is often the most practical route, especially for first-time founders. Agents file electronically on your behalf, which means approval is usually as fast as the Companies House online service. But more importantly, they can bundle in extras that smooth the setup: a registered office address, mail forwarding, or even introductions to business bank accounts and accounting support. That convenience can save you both time and stress, and reduces the risk of common filing errors or delays.

Whichever method you choose, successful registration ends with the same outcome: a Certificate of Incorporation. This is your company’s birth certificate; the official proof that your business now exists as a separate legal entity.

8. Register for Corporation Tax

Within three months of starting business activity, you must register your company with HMRC for Corporation Tax. Shortly after incorporation, HMRC will send a Unique Taxpayer Reference (UTR) to your registered office address. Keep this safe, as you’ll need it whenever you deal with company tax.

From that point on, your company has an ongoing duty to file a Company Tax Return each year. This applies even if the business made no profit. Your first accounting period normally begins on the date of incorporation, so deadlines start ticking straight away.

This is also the stage at which to consider VAT. If your turnover is expected to exceed £90,000 (the 2025/26 VAT threshold), registration is compulsory.

Some businesses choose to register earlier, even if they don’t yet need to, because it allows them to reclaim VAT on startup costs (which can be helpful if you’re facing significant upfront expenses).

9. Open a business bank account

Because a limited company is a separate legal entity, it must operate its finances separately from your own. Using a personal account breaches compliance rules and makes it challenging to determine where company funds end and personal funds begin.

A dedicated business account, on the other hand, keeps everything clear. Payments from clients are deposited directly into the company’s account, expenses are paid from it, and at year-end, your records are cleaner and easier to reconcile. This makes accounting, tax reporting, and even raising finance far more straightforward.

There are plenty of options. Traditional high-street banks typically offer startup packages that include overdrafts, debit cards, and online banking. Fintech providers, meanwhile, provide app-based accounts that are quick to set up, often with lower fees and valuable tools for invoicing or expense tracking. Some company formation agents also partner with banks to bundle banking solutions into their packages, which is handy if you want to start trading quickly.

10. Understand your ongoing legal responsibilities

Incorporating is only the start. Once it exists, you’re responsible for keeping it compliant year after year. These obligations are part of what gives your company its credibility and legal standing.

The main duties include:

• Filing a confirmation statement each year to verify company details
• Preparing and filing annual accounts with Companies House, even if the company is dormant
• Submitting a Company Tax Return to HMRC and paying any Corporation Tax due
• Notifying Companies House of any changes to directors, your registered address, or your share structure
• Maintaining statutory registers, including records of shareholders, directors, and charges

On paper, none of these tasks appear to be complex. However, deadlines are strict, penalties for errors can be severe, and accuracy is crucial.

Even if you plan to manage filings yourself, it’s wise to have an accountant or formation agent on call.

11. Plan for costs

One of the advantages of setting up a company in the UK is that the upfront cost is relatively low. However, there are ongoing expenses to consider, and planning for them from the start helps avoid unwelcome surprises.

Here’s a breakdown of the most common costs:

• Incorporation – £50 online via Companies House (soon to be £100), or £71 by post. Formation agents usually charge between £40 and £100, often offering extras such as a registered office service for an additional fee.
• Registered office service – £30–£50 per year, useful if you don’t want your home address on the public record.
• Business bank account – Typically free to open, although some providers may charge monthly fees or transaction costs.
• Accounting support – Anywhere from £50–£300+ per month, depending on the complexity of your business and the level of service you need.

Individually, these costs are modest. But together, they form part of the backbone of your company’s operating expenses. Building them into your first-year budget provides a realistic picture of what it takes to run a company and ensures you’re not caught off guard later.

Avoid early mistakes by getting the essentials right

From protecting your personal finances to enhancing your credibility and unlocking tax efficiencies, incorporation lays strong foundations from day one. The setup involves some complex registration, documentation, and compliance processes. But when it’s handled correctly from the outset, the paperwork stops being a source of stress and starts working in your favour.

1st Formations offers company formation packages designed to make that happen. We take care of the essentials, guide you through the decisions that matter, and give you space to focus on building your business.