The decision to set up a limited company is another option that new business owners should consider starting a new business. Setting up a limited company will involve more administration and upkeep as well as higher costs than registering as a sole trader. The key difference is a sole trader is personally liable for any business debts should the business fail. This puts the risk of personal bankruptcy firmly on business owners if you they are unable to pay back any business debts. Unlike a sole trader, setting up as a sole trader protects against this.
Is a limited company right for me?
A limited Company is set up as a separate legal entity which make the company legally responsible for its own actions. This is different to a sole trader where the business owner would be personally liable for all business debts. The finances of a private limited company are entirely separate from those of its owner or owners. Private Limited companies can have several shareholders but with a limited company, shares cannot be sold publicly. Only Public Limited companies have this option.
One of the benefits of having a limited company is that your loss is restricted to any money that you have invested in the company. The exception would be for bank loans if you had promised any personal guarantees for that limited company.
To an extent, being a private limited company might make you more credible to potential customers, partners or investors.
Setting up a Limited Company
To set up a limited company, you first need to register online at Companies House. You can use formation agents to carry out this process for you. The process of setting up a limited company is restively quick and just requires some basic information.
Another option is to buy a ready-made limited company name. Alternatively, you can set up a brand new limited company which requires sending a memorandum of association, articles of association and IN01 form to Companies House.
Ready-made limited company names are available to buy, should you wish. Alternatively, if you want to form a brand new limited company, you must send a memorandum of association, articles of association and a completed IN01 form to Companies House.
Memorandum of Association
- Provides details of the limited company’s name
- Resisted office of the Limited Company
- Nature of the Business
The memorandum of association must be signed by the company’s directors with witnesses present.
A registered office is the official limited company address, which is where Companies House will send notices, letters and reminders. A registered office can be set up online if you don’t actually have a business premises or you are trading remotely. There are companies that can provide registered office services.
Articles of Association
This sets out the rules for the running and regulation of the company.
Responsibilities of limited company directors
All Private limited companies have at least one director. They can also be a shareholder in the limited company if they wish to so. To be a company director, you can not have been previously disqualified from acting as a limited company director. You must also be over 16 years of age and not have been declared bankrupt.
Directors of private limited companies are also responsible for notifying Companies House of changes in the structure and management of the company.
Each year it necessary to file your annual accounts with Companies House which includes an annual audit of accounts. The private limited company must also inform HM Revenue & Customs, via an annual return, which declares any taxable income or profits. Corporation Tax will be payable.
Company directors are employees of the company and must therefore pay income tax and Class 1 National Insurance contributions. Any Profit made from limited company can be distributed to shareholders as dividends.