8 Mistakes to Avoid When Forming a Limited Company


setting up a limited company.jpgSetting up your own limited company can be a daunting prospect. However with proper planning the process can actually be quite a straightforward, hassle-free switch, if you avoid some common pitfalls.

Today’s post runs you through of some of these common issues you should be aware of to avoid a rejected company formation application, or complications after the company is formed. 

1. Rushing Your Application

The first mistake to avoid when setting up a limited company is not to rush your application. Rejected applications and post-formation changes are often the result of easily avoidable mistakes so it is important to take your time and ensure all information is correct, and correctly spelled. 

2. Distribution of A Great Number of Shares

Bear in mind that the law requires shareholders to pay the nominal value of each of their shares if the company experiences a serious financial downturn or crisis. Since the key reason for issuing shares of your company is to minimise your personal liability in the event of serious company debts, you can always make the choice to issue more shares later on if you think the situation requires you to do so. Also, remember to set the nominal value of each share at £1, which is the commonly acceptable value.

3. Distributing an Inappropriate Number of Shares

If you wish to keep main control of your company’s business, then purchase more than 50 percent of your company’s shares for yourself. If your total number of shares is less than 50 percent, other shareholders may vote and end up with a combination vote that makes up more than 50 percent to pass their motions or reject your ideas. Also, it gives you the chance to enjoy a higher amount of your company’s net profit.

4. Improper Company Name

One of the first things that you should do before you register your company’s name is to check its availability. You can easily do this via any online agent for company formation such as eQuidity. We can assist you in forming your limited company within a mere three hours after obtaining the green light to do so.

You should spend some time considering the options and coming up with the most suitable company name possible. Remember that a company name is a permanent thing. If you were to misspell it and want to change it later it is possible, however, the original name would still be reflected on the certificate of incorporation, which is something to be aware of if you are looking to display your certificate.

Another vital thing to remember when it comes to setting an organisation’s name is the addition of either “Limited” or “Ltd.” to the name’s end. With the exception of “limited by guarantee” company, other types of limited company formation requires the aforementioned addition to make it legal.

5. Setting Up the Wrong Type of Firm or Company

If you intend to distribute shares to shareholders, then opt for the “limited by share” type. In the event that the idea of shareholders doesn’t appeal to you, you can select the “limited by guarantee” type. Instead of shareholders, such a company would have members who are bound by the regulations as determined in the articles of association.

It is important to get this right from the beginning as changing the structure of an incorporated company once it is set up is complex and very time consuming.

6. Incorrect Director or Shareholder Personal Information

If you were to misspell a director’s name, you can alter it easily enough. But that’s not the case with a shareholder’s name. In addition to not being able to alter the particular shareholder’s name on the memorandum after the formation of your organisation, you also have to file an annual return for altering the said director’s name, which can be a hassle.

Also, you need to be cautious when it comes to the date of birth of a director. Since you can’t correct the information about a director’s date of birth, you may have to bring to an end the director’s appointment and reappoint the person later.

7. Place Where Your Office Is Located

Your organisation’s registered address should be within the jurisdiction of where you incorporated the organisation. For example, if you chose Scotland as the jurisdiction, then the organisation’s registered office shouldn’t be in England or Wales.

8. Incomplete Articles of Association

Articles of association refer to written regulations in relation to the operation of the organisation as concurred by the directors, shareholders and company secretary. Make sure that you include a copy of the articles of association together with your company formation application. If you intend to use standard articles or model articles, then make sure you show clearly which articles they are in your application.

Need Some Help?

If you are unsure whether setting up a limited company is the right choice or for support in making the switch you can contact eQuidity on 0117 985 6999 or email enquiries@eQuidity.co.uk