Starting a business is a big step, and one of the early decisions you’ll face is the structure of your new venture. In Scotland, a popular choice for entrepreneurs is setting up a limited company. A limited company offers benefits like limited liability, a more professional image, and greater tax efficiency, making it a popular choice for small businesses looking to grow and thrive.
In this article, we’ll walk you through the steps to set up a limited company in Scotland, from choosing your company name to filing the necessary paperwork.
1. Choose Your Company Name
The name of your company is your brand’s first impression, so choose wisely. Keep these guidelines in mind:
- Uniqueness: Your company name must be unique. Check for existing names with Companies House to ensure no other registered company has the same name.
- Compliance: Avoid sensitive or offensive words and be mindful of restrictions for certain terms like “Scottish,” “Bank,” or “Royal,” which may require additional approvals.
- Endings: In Scotland, limited companies typically end in “Ltd” or “Limited.” If your company is a non-profit, you can apply to have this suffix removed.
Once you’ve chosen a name that’s unique and compliant, you’re ready to move to the next step.
2. Register Your Company Address
Every limited company in the UK, including Scotland, needs a registered office address. This is the official address where Companies House, HMRC, and other government bodies will send official correspondence.
Things to know about your registered address:
- Location Requirement: Your address must be a physical location in Scotland.
- Public Record: This address will be publicly accessible, so some business owners prefer to use a virtual office service.
Alternatively, if you work from home, you can use your residential address, though it will be visible to the public.
3. Appoint Directors and Shareholders
All limited companies in Scotland must have at least one director and one shareholder. Here’s a quick overview:
- Directors are responsible for running the company and ensuring compliance with legal requirements. They must be at least 16 years old.
- Shareholders own a part of the company through shares. A shareholder can also be a director, making it possible for a single person to be both.
Directors must agree to certain responsibilities, including filing accounts and tax returns on time. Additionally, if your company has more than one shareholder, you might consider drafting a shareholder agreement to set out roles and responsibilities.
4. Define Your Company’s Structure
One of the key documents you’ll need is your memorandum and articles of association, which outline your company’s purpose and the rules for running it. In most cases, small business owners can use the Model Articles provided by Companies House, which are a standard template suited for many types of businesses.
- Memorandum of Association: This is a short statement signed by all initial shareholders confirming they agree to form the company.
- Articles of Association: These rules govern the internal management of the company, such as director powers, shareholder rights, and decision-making processes.
These documents are essential for a compliant setup and are required during registration.
5. Decide on Share Structure and Allocation
Shares represent ownership of the company, and you’ll need to issue at least one share when forming a limited company. Here’s what to keep in mind:
- Share Classes: You may choose to have different classes of shares, especially if you want to give different rights (such as voting rights or dividend rights) to different shareholders.
- Number of Shares: Most small businesses start with a single share (often valued at £1) to simplify ownership structure, but you can issue more if you plan on bringing in additional shareholders or investors.
Consider consulting a legal or financial advisor to ensure your share structure aligns with your long-term business goals.
6. Register with Companies House
Once you’ve decided on your name, address, directors, shareholders, and share structure, it’s time to register your company with Companies House. You can do this online, by post, or through a third-party formation agent.
- Use our Scottish Company formation service.
- Online Registration is the quickest and costs £50, with confirmation typically received within 24 hours.
- Postal Registration takes longer (about 8-10 days) and costs £71.
For your application, you’ll need to complete Form IN01, which collects details about your company name, directors, shareholders, share structure, and address.
7. Register for Corporation Tax with HMRC
Once your company is incorporated, you have three months to inform HMRC that your business is active and liable for Corporation Tax. Registration can be completed online, and it’s essential to stay compliant by submitting annual accounts and Corporation Tax returns.
Corporation Tax applies to your company’s profits and currently sits at 25% however if your company made a profit of £50,000 or less, you’ll pay the ‘small profits rate’, which is 19%, though this may vary in the future. To help with compliance, consider setting up accounting software or engaging an accountant.
8. Register for Other Relevant Taxes
Depending on your business, you may need to register for additional taxes. Here are a few to consider:
- VAT (Value Added Tax): Register if your turnover exceeds the current VAT threshold of £90,000.
- PAYE (Pay As You Earn): If you plan to hire employees, you’ll need to register for PAYE with HMRC. This will allow you to deduct income tax and National Insurance contributions from your employees' salaries.
Each registration comes with specific reporting requirements, so make sure to review what’s needed for your business type.
9. Set Up a Business Bank Account
A limited company is legally separate from its owners, so it’s essential to open a separate business bank account. This will:
- Keep business finances distinct from personal finances.
- Make accounting and tax filing easier and more transparent.
Many UK banks offer accounts tailored to small businesses, often with features like mobile banking, expense tracking, and online support.
10. Consider Professional Support
Setting up a limited company involves numerous legal requirements, which can seem daunting for first-time business owners. Many small business owners in Scotland find it helpful to consult a solicitor, accountant, or company formation agent to ensure compliance and make the process smoother.
Professional support can assist with:
- Reviewing your articles of association.
- Optimizing your share structure for tax purposes.
- Ensuring your financial records and reports are accurate and timely.
Final Thoughts
Establishing a limited company in Scotland offers many advantages, from limited liability to increased credibility with customers and suppliers. Although the setup process involves careful planning and compliance with specific requirements, it is manageable with the right guidance.
By following these steps and seeking professional support when needed, you’ll be on your way to creating a solid foundation for your small business. Good luck on your journey as a Scottish entrepreneur!