I can quite honestly say that the vast majority of micro businesses that form under the banner of a limited company don’t have a clue what they’re doing. This might be a sweeping statement but it’s something I’m convinced about.

People don’t realise a limited company requires lots of admin to maintain and run the structure correctly. Early in my days of running carrotmedia Ltd I filed a resolution with Companies House that was so bad my solicitors recommended going to court to have it removed.

However, I’ve learnt a huge amount over the past 5 years and created some quite complex structures within carrotmedia Ltd. Effective limited company planning can help with tax management, staff shareholding incentives, risk management, etc.

I’ve written a few questions below which you should be able to answer if you are either thinking about a limited company or currently running one:

• When did you last modify or amend your Memorandums & Articles of association?
• When was the last special and ordinary resolution filed?
• Is your company resister filled in and stored at your registered office address?
• Do you have the correct shares issued and do you need different share classes?

I’m not a limited company expert and a lot of my knowledge is limited to theory. In reality my ability to correctly action and word resolutions could be better. I work with a good firm of solicitors to ensure all my resolutions make good legal sense and I would highly recommend working with a professional company secretary. A correctly organised limited company can help with structuring growth and will save you a fortune! Whatever you paid in fees can be repaid in the blink of an eye.

We decided a limited company was the correct legal structure for Eliot Turner and you will see the company is now formed on Companies House. We wanted every member of the carrotmedia Ltd family to be involved at a director level with a shareholding. In the future we want every member of staff we employ to have an interest in the company. You might think this is high risk but by protecting yourself through clever resolutions and a shareholders’ agreement you can keep full control of the company. For example, I could give a member of staff a A1 Class share which has no voting rights but entitles them to a small share of the profits. I could specify that these shares can only be held while employed by carrotmedia Ltd a completely unrelated company.

I hope this gives you a flavour of how a limited company can be used to develop your business and protect you while incentivising others.

Early in my business life I had to part with a business partner who helped me develop carrotmedia (my day job) in the first 2 years of trading. Unfortunately we had to part ways which fortunately were extremely amicable and we remain friends to this day. However, this process could have been much simpler and easier if some simple legal documents had been in place.

I’m going into business with my two other directors from carrotmedia and Hollie, one of our employees who are fantastic guys and I couldn’t ask for a stronger team. However, we will be drawing up a shareholder agreement to cover the acquisition and disposal of shares in Eliot Turner Ltd. This won’t be a long drawn out document but extremely simple so we all know where we stand.

So why is this a good idea if we’re such a strong team? As we are going to be equal shareholders in the company it’s important that if one of us needs to walk away we can exit without damaging the business. Three of us are equal shareholders of 33% without a member of the board we can pass a special resolution thus meaning the business can’t run. For example, imagine if a member of the board sold his shares to a friend without giving the other directors the opportunity to buy them. A shareholder agreement should prevent this from happening and millions of other permutations.

I would expect to form a limited company and draw up a shareholder agreement for about £500. This doesn’t include making changes to the memorandums and article of association or drawing up your first resolutions. If you don’t understand what I’m on about you must seek good legal advice as I recon about 90% of small business don’t know how to run a limited company correctly.