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Limited company rules you need to know

Be prepared when starting your own business

The rules for setting up and running a limited company are fairly straightforward, making it an attractive option for those wanting to start their own business. Here are some of the most important rules to consider when setting up a limited company:

  • You may not operate as a limited company until the business has been incorporated at Companies House under the Companies Act 2006.
  • The directors of a limited company must file certain documents every year, including annual accounts and an annual tax return.
  • It is the director’s duty to inform Companies House about any changes, for instance when a director resigns or is appointed or if the company’s registered office is changed.

Limited company name rules

When you set up a limited company, you should take note of the naming rules set out by the Companies Act. If any of these rules aren’t observed, it’s likely that your name will not be approved.

Your limited company’s name:

  • Must be unique. In other words, it may not be the same as a name that’s already registered on the index of company names.
  • Must have “Ltd.” or “Limited” behind the name, for example: Gemini PC Repairs Ltd.
  • May be changed at a later date, but the company registration number may not.
  • Must not contain offensive or abusive words, or words relating to illegal activities.
  • May not contain trademarked words, for instance, “Juno Jacuzzi Repairs,” cannot be used as the word ‘Jacuzzi’ is a trademark.
  • May not include any “sensitive” words in your name unless you have received official permission. Sensitive words include Adjudicator, Commission, Foundation and Trust. See Companies House for a [full list] of sensitive words.

Limited company address rules

A limited company must have a registered office address. This is the place to which any official documentation or correspondence is sent by Companies House and HM Revenue & Customs. It doesn't have to be the same as the place of operation; it can be your home address or the home address of one of the directors, as long as it’s:

  • A physical address
  • In the same country that your company is registered in

Limited company dividend rules

The most beneficial way to draw money as the director of a limited company is to pay yourself a low salary (salary payments are taxed with PAYE and National Insurance) and take more income via dividends, which is essentially the division of profits among the limited company’s shareholders.

In this regard there a few things you need to take note of:

  • The decision to take dividends must be approved by all company shareholders, as specified in your limited company's Articles of Association.
  • Dividends can be distributed at any time, as long as there's enough “retained earnings” available. Dividends declared when the company is in the red are called illegal dividends (that is when dividends are paid even though the accounts of the company show negative retained earnings). 
  • At the end of your tax year, you must make sure that the total of all your dividends taken have been covered by profits earned by the company after all expenditure (including salaries) and corporation tax have been paid – this is also the formula for retained earnings.

Get help with the rules surrounding the set up and running of your limited company by contacting an expert consultant below.

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