At GetGround, we’ve set up thousands of limited companies specifically designed for Buy to Let. Based on this experience, we’ve got a couple of tips around avoiding some of the common pitfalls around company set up that could save you some headaches down the line.
Incorrect SIC Code
Companies House will ask you for a SIC (Standard Industrial Classification) code when you form your company. This information tells them what type of company you are running. Though there are several property-related SIC codes, all GetGround buy-to-let companies use 68209 which is for “the letting and operating of own or leased real estate”.
Having the correct SIC code is important, especially if you’re keen to secure mortgage lending on your properties. If you don’t have the right code, you may find that some lenders won’t lend to you or will delay the process. This is because lenders want to ensure that your company is properly set up for the sole purpose of holding investment property.
Having a bank account in your personal name
Once you’ve formed a company, you will need to set up a bank account so that you can keep track of your transactions. This will make it easier for you to file your end of year accounts and tax returns.
However, you’ll need to make sure that the account you set up is not in your personal name but rather, in the company name.
If you’re looking for a mortgage for your investment property, you’ll also need a business account to meet your lender’s requirements. Usually, they’ll require a UK sort code, UK account number, direct debit functionality, and the ability to accept different payment types like CHAPS, BACS, and Faster Payments.
Using your home address as your company address
Using your home address as your company address will allow anyone to know where you live, as your address will be detailed next to your name on Companies House. This means that individuals and/or companies will be able to send unsolicited mail to you, or contact you directly at your home address.
To maintain your privacy and overall security, you’ll want to use a service that provides a registered office as part of their overall offering. This will then allow you to receive all company-related mail safely and hassle free.
Not Determining Your Shareholders Property
A shareholder is essentially an owner in the company and as such, may receive company profits. In the UK, you’ll need at least one shareholder for each company.
Shareholders can own all the shares in a property, or shares can be divided between two or more shareholders. Being a shareholder will also mean that you have voting rights and influence over the running of the company.
When you set up a company, you’ll want to make sure that you determine who the shareholders are in your company and what percentage of shares they’ll each own. Though you can always change this later down the line, it can cost you time and legal fees to do so properly so it will help to consider this carefully from the very beginning.
Underestimating the role of a company director
When you set up your company, you’ll also need to select at least one Company Director as it is a legal requirement to do so. Often, the Company Director is also a shareholder (but not all shareholders will be Directors).
It’s important to consider who you’d like to appoint as a Company Director, as they have a number of legal duties around exercising care, skill, and diligence in running the company. They will also have a number of administrative duties, such as filing company accounts. There are also substantial penalties if they do not carry out their duties correctly.
Insufficient Legal Documents
When you set up your company, you’ll need to make sure that you have the proper legal documentation to keep you and your shareholders protected. As part of the incorporation process, you’ll likely need an Articles of Association, Memorandum, and Shareholder Agreement.
Though you might be able to find these legal documents online (and sometimes for free!), you need to make sure that these are well-written and are specifically for buy-to-let property companies. This will ensure that you are legally protected.
Additionally, the Shareholder Agreement in particular is vital for protecting you and the other shareholders in your business. This could prevent costly disputes in the future.
Though these potential pitfalls can seem daunting, there’s no need to worry! GetGround was founded to make this process much easier and more efficient so you don’t need to stress about getting your company set up correctly.
If you’d like to learn more about how we can help, organise a call with us!