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What does LLC stand for and what are the steps to establish an LLC?

Any entrepreneur has likely heard about a limited liability company (LLC). It is the most common type of corporation people form because of the protection it provides. This article will explain an LLC and the steps required to establish one. 

What Is An LLC?

It is a type of company that offers its shareholders limited liability protection. This protection means shareholders aren’t personally liable for corporate debts and losses. 

An LLC is one of the best inventions of the 21st century because it allows entrepreneurs to take financial risks and build solid businesses. If the business unfortunately fails, creditors can’t go after the owners’ personal assets. An LLC encourages entrepreneurs to build businesses and help the economy grow.

In the UK, an LLC is known as a private limited company. It can be limited by shares or by guarantee. Every limited company must have separate finances from its owners; otherwise, the owners will lose their personal liability protection.

How To Set Up An LLC in the UK

The steps to set up a limited company include

1. Choose A Name

The first step is choosing a name for your business. You must choose a name that another business hasn’t registered (you can use the Companies House website to check if your desired name is available). The name must not be similar to an established brand/trademark or contain vulgar language.

Limited company names usually end with ‘Limited’ or ‘Ltd’. You can also use the Welsh equivalents, ‘Cyfyngedig’ and ‘Cyf’, if you register your business in the British constituent of Wales.

2. Choose Directors and Corporate Secretary

Every British corporation must have at least one appointed director responsible for day-to-day management. Directors ensure their companies follow regulations, keep accurate financial reports, pay taxes, and interact with shareholders.

A director of a UK-based firm must be at least 16 years of age and not be disqualified from corporate directorship due to previous misconduct. You can serve as the director of your company or appoint other people.

You can also appoint a corporate secretary, although it’s not compulsory. Corporate secretaries handle administrative matters and advise directors on complying with regulations.

3. Choose Shareholders and Share Capital

Every private limited company must have at least one shareholder. You’ll choose your total number of shares (share capital) and allocate specific amounts to different shareholders. The higher the number of shares a person has, the greater their influence over corporate affairs.

A shareholder can act as a director, but a director is not always a shareholder. 

4. Identify People With Significant Control (PSCs)

In the incorporation application form, you must identify people with significant control (PSCs) over your company. PSCs include anyone with more than 25% of shares, 25% of voting rights, or has the authority to appoint or remove most of the board of directors.

5. Prepare Memorandum and Articles of Association

You’ll need to prepare two important documents for your business: a Memorandum of Association (MOA) and Articles of Association (AOA).

The MOA is a legally binding document that all shareholders sign to declare their intention to form a corporation. The AOA is a legally binding document outlining the rules governing the business.

6. Submit Your Application

With all the above requirements ready, you’ll fill out the Form IN01 incorporation application with Companies House. You’ll submit important documents alongside this application, including

  • Valid identity documents for all directors, shareholders, and the corporate secretary.
  • Proof of a registered office address to receive mail about business-related matters.
  • The Memorandum and Articles of Association. 
  • Share capital details, including the number and classes of shares. 

You can fill out and submit the form online or by post. Online applications take as little as 24 hours to process, while postal applications take up to 10 days.

Companies House will review your application and decide whether to approve it. If approved, it’ll send you a Certificate of Incorporation confirming that your company is now registered with the government.