As soon as your limited company is set up or ‘incorporated’, you can start trading through it.
There are some early steps that you can take and systems that you can put in place in order to ensure that this trading goes as smoothly as possible and also to set your company up for future growth and investment.
Contents:
- What are the first steps to take after setting up your limited company?
- What tax applies to your limited company?
- Which types of business insurance are relevant to your limited company?
- What insurances are you legally required to put in place?
- What insurances protect your company from business risk?
- Does your company needs its own bank account?
- Does you company need terms and conditions to do business?
- What are the annual filing requirements for your company?
- How does your company make its decisions?
- What changes might occur in relation to your limited company?
- How do you effectively manage the running of your company?
What are the first steps to take after setting up your limited company?
As you can start trading as soon as your company is incorporated, so your company becomes potentially liable for tax, runs the risk of causing or incurring loss and damage and seeks to build stable relationships with customers.
What tax applies to your limited company?
Limited companies are liable for corporation tax.
Companies House notifies HMRC every time a new company is incorporated. HMRC should then write to you at your company’s registered office address:
- informing you of the company’s UTR or unique tax reference number, which is needed for all tax matters relating to the company;
- detailing how you can register for corporation tax, which must be done within 3 months of incorporation. In the event that you do not plan to trade immediately then you do not have to register for corporation tax but must notify HMRC that your company is dormant.
Which types of business insurance are relevant to your limited company?
The insurance that you take out in relation to your limited company depends on the business that it undertakes and how that business is undertaken, for example through employees and/or at commercial premises. You should speak to an experienced insurance broker to find out exactly what insurances and levels of cover you should put in place for your business.
What insurances are you legally required to put in place?
Employers Liability Insurance
Once you take on your first employee, you are legally required to have employers’ liability insurance. This applies even if you have no full-time employees and just hire temporary workers.
Failure to put this insurance in place can lead to large fines, and worse should something happen to an employee and you have no cover.
Motor vehicle insurance
If you operate company vehicles, you are legally required to have at least third-party insurance, preferably fully comprehensive.
Whilst not a legal requirement, if you have expensive kit that you transport in company vehicles, then it is worth making sure that this kit is insured either via this motor insurance, property/contents insurance or insurance bespoke to the relevant kit.
Industry-specific insurance policies
If you are part of a recognised profession, you must check with your industry body what insurance policies they require you to have in order to practise that profession.
What insurances protect your company from business risk?
Public liability insurance
Whilst not legally required, public liability insurance is a necessary insurance if members of the public come to your company’s premises, or could be hurt or suffer loss in any way by something your company does through its business.
You may find that customers will not employ your company without public liability insurance.
Buildings insurance for your company premises
Although not legally required, if your company trades from its own commercial premises then it is wise to protect them through insurance, just as you would your own home. Lenders will not typically lend for the purchase of commercial property without adequate buildings insurance being in place. Equally you may want to insure any expensive contents against loss or damage.
Professional Indemnity insurance
Depending on your type of business, professional indemnity insurance provides protection for you and your company against claims for professional negligence. This insurance is necessary if you are providing advisory or professional type services to organisations and/or the public. In fact, many organisations will require you to have this insurance in place in order to do business with you.
Other insurances that protect against specific business risks
There are other insurances that could be useful in protecting your company from specific risks, depending on the type of business and how that business is conducted and also the elements of that business that are most valuable, such as intellectual property or a particular employee or director.
- Business continuity insurance
- Product liability
- Employee travel insurance
- Intellectual property insurance
- Key person insurance
- Tax investigation insurance
Does your company needs its own bank account?
Whilst there is no legal requirement for a company to have a separate bank account, it makes commercial and practical sense to separate company funds from your own personal funds:
- It is consistent and professional for customers to pay into a bank account with the same name as the company with which they do business;
- It makes it easier to see the payments that the company makes to you in terms of salary, dividends or loans and for it to account for these in its annual accounts;
- It makes it easier to see all the costs and outgoings relevant to the company, for example insurance payments.
Does you company need terms and conditions to do business?
Terms and conditions of doing business are a necessary for your company in order to provide certainty and harmony in your relationships with your customers:
- They provide clarity in terms of who is liable and for what by apportioning risk between you and your customer. This is often done on the basis of who would typically carry insurance for that risk. For example, if you work at your customer’s premises, you can state that you have no liability for loss or damage to those premises, as your customer would typically carry insurance for his business premises.
- They clarify what happens in the event of negligence on the part of your company or customer.
- Describes what work your company will do and when, so as to prevent disputes and misunderstandings and to ensure that you get paid.
- Clarifies how much your company will be paid and when and what happens if your company does not get paid.
- Provides warranties and disclaimers: what you say you can do or own and what you say you will not do. For example, you may warrant that you have the right to use certain intellectual property.
- Determines what happens in the case of any dispute and how that dispute will be resolved.
- Specifies who owns what in the event that a product is produced as a result of the work your company does for the customer.
Companies regularly trade using standardised terms and conditions of business and these can be developed and put in place for your company through contacting a corporate lawyer. The process of putting in place these terms and conditions also highlights the key risks for your business and where it might be prudent to take out insurance.
What are the annual filing requirements for your company?
There are annual filing requirements that apply to limited companies.
What is a confirmation statement?
This is a report that company directors are legally required to complete twelve months after company incorporation and annually after that. The aim of the report is to ensure the details in relation to your company kept at Companies House are up to date and correct. This includes the type of business carried on by your company, details of shareholders and shareholdings and names of any officers of the company.
What are the requirements in relation to company accounts?
There is an annual obligation to file accounts at Companies House and also to pay any corporation tax due according to those accounts.
Specific rules apply to small companies so that they can file abbreviated and unaudited accounts, reducing the complexity and costs associated with the annual accounting process for small businesses.
How does your company make its decisions?
Company decisions are made either by directors or by shareholders.
What decisions do directors make?
The director or board of directors makes decisions as to the day-to-day running of the company. The rules as to what decisions directors make and how they make these decisions are found in the Articles of Association. In general decisions can be made in board meetings or by written resolution. If decisions are made in board meetings then the Articles will provide details in relation to how many directors need to be present, how voting will work and what will happen if there is deadlock in the votes.
What decisions do shareholders make?
Shareholders make the important decisions relating to the company, such as in relation to increases and changes in the share capital. Again these decisions can be made in meeting or by written resolution. The requirements in relation to how meetings are arranged, how many shareholders must be presented and how voting works are contained in the Articles of Association.
What practical steps are required in relation to company decisions?
It’s important to keep a record of the decisions taken for and on behalf of the company. This requires someone to take notes and then for these notes to be kept in a filing system.
If you need any clarifications in relation to any of the annual filing or other requirements in relation to your company, a corporate lawyer will be able to assist you.
What changes might occur in relation to your limited company?
There are many changes that could occur in relation to your limited company as you begin and continue to do business through it. These include the following:
- Changes to the type of business conducted;
- Changes to the directors and/or company secretary;
- Change to the registered office;
- Change of name;
- Change in shareholders and share capital.
These changes are quite normal in the life of a limited company and the process for making them will be set out in the Articles of Association. A corporate lawyer can assist you in quickly making any of these changes so that you can continue to focus on your company’s business.
Some of these changes may mean that consequential amendments are needed to your terms and conditions of business and also your business insurance. A corporate lawyer can highlight any such consequential amendments in order that you continue to have certainty and peace of mind in these areas.
How do you effectively manage the running of your company?
Whilst not critical to your company winning customers and delivering returns, effective practice management is fundamental to securing growth. Practice management requires you to be organised in keeping records both for company decisions and for your company accounts, maintaining terms and conditions of trading and considering which insurance is right for your company.
In the event that you seek funding for your company in the future, then this diligent practice management will reward you in terms of making the due diligence carried out by lenders and/or investors much more straightforward and presenting a professional business to those lenders and investors.
If you would like to explore any of the topics covered in this article please contact our corporate law experts who are well placed to take this forward with you.
