Setting up a limited company is not usually the first stage of working for yourself, but for a mum considering working from home who needs some capital but doesn’t want to get a loan, it may be an easy way to raise some capital. It is best to keep the shareholder list to family and friends in the first instance, but eventually the sky could be the limit. Essentially, the shareholders own the company but you would be the director, possibly with a partner or close friend. There are various ethical issues with being a director of a limited company, but the legal responsibilities are quite precise and are exactly what the phrase implies – it is the law that you comply with these responsibilities, or there are penalties. Just because the shareholders are ‘only’ your mum and dad, this does not mean that you can ignore them, so think carefully before you set up a limited company.
Your main legal responsibilities are to do with filing paperwork. If you really hate this side of being self employed then you could possibly appoint a company secretary to do this for you, but you will still bear the main responsibility to ensure that everything is filed with Companies House at the appropriate time. The paperwork involved is specifically the annual return and the annual accounts. This, as you have probably guessed, has to be done yearly.
You also are responsible for telling Companies House of any changes in the set up of the business, if any officers change or if the business changes its registered address. You also have to let them know if any of the officers of the company move or change their name or anything like that. From this you can probably tell why it is a good idea to keep things small when you first decide to set up a limited company and also why it is essential to seek some law advice before beginning. Companies House do not have these rules and regulations for nothing, although as you wade through the paperwork that thought might go through your head; the rules are there to protect you and your shareholders. Not every company director is as scrupulous as you!
You will also be the person who decides on the allotment of shares. There has been a lot in the news lately about people who have become millionaires overnight because Facebook is floating its shares and in its early days it had paid contractors in shares which are now worth a fortune. Thinking ahead, when your limited company which you set up to make a few more pounds working from home part time is floated on the stock exchange, you will want the shares to be in the hands of those who you would want to help, so be careful how you distribute them. If they are in the wrong hands meaning you no longer own a controlling interest, this could be awkward. This is not just the plot of a TV thriller, but a situation that happens all the time, so give this part of your job a lot of thought.