Setting up a Limited Company
If you want to set up a limited company, you should be aware of the different kinds of company registrations that are recognised under UK law. The actual process of company formation is fairly easy these days and much of the work for incorporation can be undertaken online in a matter of minutes.
Setting up a company is not difficult or expensive but you should be aware of the options open to you and choose the best one for your particular business.
The types of Company
Sole Trader: this is by far the easiest way to start your business and requires very little bureaucracy and set-up costs are low. All you need to do is register with the HM Revenue & Customs as a self-employed person. You can then immediately start trading as a sole trader in your desired business. You can call HMRC on 08495 154515 or visit their website for more details.
The Tax issues of being a sole trader are very straightforward. You simply have to declare your income every year on your tax return. The main drawback is that you will be personally liable for any debts your business incurs. This can mean that you will be in danger of losing your home if your business fails with a large amount of debt.
Partnership Franchise: This is very similar to being a sole trader but involves more than one person running the business. Be aware that each of the partners will be liable for the total debts of the business should it fail so you should only consider setting up a partnership with people you can trust and who you know well.
Private Limited Company: This is the kind of company most of us think of when considering setting up a company in the UK. While more difficult to start than a Sole Trader it is not difficult to register as a limited company. You have to follow the following steps:
Register your company name with Registrar of Companies at Companies House. This will cost you £20 and can be done very quickly on-line.
The Benefits of Being a Limited Company
The benefit of being a limited company is that the directors are not personally responsible for company debts. This is called Limited Liability. Your business and your personal income are completely separate.
You are probably going to pay less tax as you can take most of your income as dividends, rather than as taxable salary.
A Limited Company gives your customers a much more professional impression than being a sole trader. Some companies may only be willing to deal worth limited companies.
If you register your business name with Companies House it will be protect in law. You should chose a name which is unique and for which you can buy a suitable domain name for your website, which is an essential component of every modern business.
As a limited company you will also carry more weight with your bank and other financial institutions, who will be more likely to provide finance.
Other Legal Requirements of a Limited Company
As well as registering your company with HMRC there are other rules you must comply with when setting up a limited company.
- Your company's name must be clearly shown on all your stationary and paperwork. Don't forget to put it on your website and to display it in your office building. You should also include your registered number and registered office address.
- If any company directors' names are included in letters (other than in the text or as the person signing it) you must include the names of all the directors.
- Your company does not become a legal entity until all necessary documents have been sent to the Registrar of Companies, completed and signed, and you have received confirmation that you have been accepted.
- It is no longer a legal requirement to have company secretary from 2010.
- You must have at least one Director who must be over 16 years of age and not a un-discharged bankrupt.
- You must file your annual company accounts with Companies House. It is also not a legal requirement to have an accountant, although it may be advisable if you are not comfortable with keeping accounts.
- You must have a registered office in the UK, although your physical office can be in your own home.
If you are not sure which option of company is the best for your business you should take some professional advice from your lawyer or bank.