Things to avoid when setting up your property limited company

Normally it’s quite easy to set up a limited company at Companies House. But getting some of the little details wrong when setting up your property company, can make a big difference later down the line.

It’s important to structure a company correctly from day one. We help people set up limited companies for their property portfolio’s but so often we find people who set up the limited company themselves make the same mistakes. This is where property investors who set up their own limited company and who don’t get advice tend to trip up.

It is key to ensure you take time in understanding the consequences of setting up a limited company. Often making these mistakes will affect their tax efficiency or their family members later down the line.

Common mistakes in setting up a limited company

So, here’s our list of the things to avoid when setting up your property through a limited company.

Incorrect shareholder percentages and classes

Shares represent how much of a company is owned and controlled by each shareholder, as well as the percentage of profits they’re entitled to receive.

Shares also determine the extent of each shareholder’s liability for the debts of the business if it fails. So, you must:

• issue the right number of shares to each individual, based on their investment, profit entitlement, and level of control.
• avoid issuing too many shares if no real reason to do so.

Remember that any other shareholder in your company will have voting rights and influence over the day to day running of the limited company. They should also be paid dividends based on the number of shares they hold.

Having numerous shareholders (family members for example) can have tax benefits when it comes to income tax, dividend tax and potentially inheritance tax as well.

So, ensure you set up the share distribution of company shares in a way that is most tax efficient and that works for you and your goals, as well as your family. It’s common for spouses, and even children, to be shareholders and receive a share of the company’s profits.

Wrong share values

Normally, the number of shares issued for your company is typically 100 and the value of the shares is £1 each. These are what are known as ‘ordinary shares’.

The shares should be split between the shareholders and this split determines the amount of profit each shareholder will receive in dividend.

Having too few shares in the company (i.e., one each for a husband and wife) can restrict what you do with the shares in the future. Creating 100 shares allows you to sell, transfer or gift small amounts in the future to other new directors, employees or family members, giving you flexibility.

People with Significant Control (PSC) register is incorrect

Legally, limited companies and LLPs must maintain a register of People with Significant Control (PSC register). The information contained in the PSC register has to be filed with Companies House every year, as part of the confirmation statement.

If the wrong information has been mistakenly submitted or company changes mean that the PSC register needs to be updated and Companies House must be notified.

Using model articles of association

‘Articles of association’ are rules about how the company will be run which are agreed by the shareholders, directors and company secretary.

When setting up your company, you can write your own or use model articles. If your property has a more complex share structure, then it may be better to use bespoke articles of association.

Where there are complex relationships with your property company, like non-family or n0n-connected parties purchasing property together, the articles should be more bespoke to offer you better cover.

Incorrect spellings

Often it can be really simple mistakes that cause later problems. Things like the name of a company being incorrectly registered, possibly due to a simple spelling error. Or a name may have been chosen which is too similar to the company name of a competitor. In either case, check everything carefully and if necessary change the name which was initially registered with Companies House.

The name of a shareholder may also have been incorrectly entered on the register of members. Or, a member may have officially changed their name. To update shareholder information at Companies House, a confirmation statement needs to be filed.

Seek professional advice before setting up a limited company

Setting up and running a limited company for your property portfolio needs to be well thought out, depending on how you want to run it now and in the future. Property companies can often have complex structures with multiple property investors, so getting you company formation right in the beginning is key. Your limited company structure needs to be considered with all the correct information being submitted to Companies House, including shareholder names, registered office address, company name, number of shares, share value and articles of association.

Getting the right company set up now, may result in better tax efficiency and be more cost effective.

Getting an accountant and tax advisor that specialises in limited property companies is key. to ensure the company is set up correctly. A company is formed once, so make sure you get it done correctly by a specialist to ensure you don’t hit problems later down the line.

If you need advice on limited company formation or want to set up a limited company, then book a call with us today.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.