POINTS TO CONSIDER
If you looking for a business structure that enables you to separate private affairs from business ones and possibly to have more advantageous taxation Limited Company might be a good choice for you. The Limited company is a legal entity which can be subject to legal action. Any profit after tax the company makes owned by the company.
Here are some advantages and disadvantages you might want to consider before your decision:
- Limited liability is one of the main factor that makes this type of business structure a preferred choice, shareholders liable for the debts the business runs up to the extent of their own investment (including unpaid shares)
- Distinct legal entity which enables the Limited company to run continuously, business and employees legally not affected by changes in the shareholders’ structure and changes of Directors.
- Advantageous taxation if definitely something you have to calculate for your company, especially if your business is making a profit that would tax in the higher band if you would be a sole trader. With the ongoing and recent changes of the Corporate Tax, from 1 April 2015 you pay 20% tax on your profit no matter of the size. The right mixture of salary, dividend, directors’ loans and other benefits is an important motivator for a lot of people.
- In case of small Limited companies ownership and control is in the same hand as the Director is usually the main shareholder, which results the same advantages as a Sole Trader regarding quick decision making.
- Company name has to be registered but with that being said it is an important marketing tool for your business as it helps you being clearly identified and you can build a brand around it. Limited companies often regarded more established although in many cases this fact is unfounded. Company data can be looked up and this is good news for successful businesses as they will be regarded as clients/suppliers that can meet up their financial obligations.
- You will meet less obstacles when you trying to raise funds from banks than a sole trader.
- In case the Director is not a shareholder it is very important to put controls over the matter as interests can be in conflict. More about Directors >>>HERE<<<
- Private Limited companies are restricted on capital raising as shares cannot be sold for this purpose unlike Public Liability companies.
- Limited companies expected to comply with a lot of rules and produce different forms, accounts and provide information. This can be a complex matter that requires you to hire additional help.
- Costs are expected to be higher than as of the Sole Trader’s, additionally to the administrative burden you have to pay for submitting certain forms as well.
- Being in a certain trade sector and or exceed a set turnover the limited company is being subjected to audit in which case you have to seek accountant services (for current regulation on this please check under Service Summary)
In order to be able to set up as a Limited company you will need to:
- Have a business name and a physical address for your company
- Have at least one Director
- Have at least one shareholder
- Have the statement of capital drawn up (details of the company’s shares and the right attached to them)
- Have the memorandum and articles of association drawn up
After having the above ready
- Register with Companies House
The easiest way to register is online should your company have standard registration.
There are fees attached to this procedure which you have to bear yourself.
- Set up the company for Corporate Tax
After the incorporation your company will receive its UTR to the registered business address. You have to set up your HMRC online account for Corporation Tax and Tax Returns.
Making an informed decision is an early advantage to your business, if you think you need detailed information about your possibilities please do not hesitate to CONTACT OptiAccounts!