Whether you are a contractor or starting a business, setting up a limited company sounds like an exciting proposition. The opportunity to start something on your own and break away from a rigid business structure is very appealing. But where do you start?
What may seem like an extremely daunting process can actually be quite simple. To get you started, here are some easy tips to follow to set up your limited company. They are sure to help you get yourself up and running in no time at all.
Understanding The Limited Company
A great place to start is understanding the ins and outs of what a limited company is and what it means to run one. The limited company is an organisation which is called a ‘moral person’ in the law. This means that it has its own identity and does business under its own name. It can make or lose money, acquire debt and pay taxes by itself, just like a person.
A limited company needs its own bank account because any revenue earned must be paid into a company account and not into your own personal account. However, do not be put off by this, a bank account for a limited company can be set up in a mere 24 hours.
What You Need
To start setting up a limited company, you’ll need to:
- Pick a suitable name for your company
- Choose a company address
- Decide where it will be based
- Decide who is going to be involved in the company and what role they will play. You can allocate company shares, with 25% giving an individual a strong position and control over voting rights
- Appoint at least one Director
- Create the company’s rules
- Register the company
For the name, some believe it is best to choose a name directly related to what you do, just in case you change or expand your field of work. For example, CarphoneWarehouse continue to use their name to sell mobile phones, despite no longer selling car phones.
If you wish to change your business proposition or re-brand with another name, you can always become a ‘trading style’ of that limited company. Google are notoriously a trading style of parent company Alphabet.
The Costs of Setting Up a Limited Company
If you are considering setting up a limited company, there is no need to be put off by the costs. In fact, setting up a limited company is very inexpensive as a way to encourage entrepreneurship and business spirit.
Applicants can set up a business for just £12 online and get registered within 24 hours. For postal set up, it can cost £40 with processing times between 8 to 10 days or you can pay £100 for same day set up. You can read more about this and register here.
The Benefits of Running a Limited Company
While running a limited company comes with responsibility, there are significant advantages to make it worthwhile. The benefits include:
If you run a limited company, you are protected if your business activity does not go to plan and you do not make any profits. As a director, you will not be personally liable for the financial losses made by the company, assuming all rules have been followed throughout your time as the director.
Protection For Your Company
In addition to limited liability protection, the name of your company will be protected by law once your registration has been successful. The rules surrounding the naming of companies are strict to make sure no one else can use the same company name as you, or anything deemed too similar. For this reason, people check to see if a limited company name has already been taken, because it cannot be replicated.
If you are a director and/or a shareholder of a limited company, you can opt to receive most of your income in the form of dividends and this allows you to be tax efficient. This allows you to take charge of your own tax liability with the potential to save on any National Insurance costs and also claim any business expenses to reduce the amount of tax you pay.
Having the status of a limited company gives you a sense of legitimacy and professionalism, which can open you to other businesses, clients and partnerships.
For some industries and types of loans, it may even be a mandatory requirement to only deal with limited companies, as some industries tend not to deal with sole traders or partnerships.
If you are a sole shareholder in your business, you own the business. Conversely, with a limited company, the ownership of shares can be easily transferred. For instance, if a shareholder wishes to retire, one can simply transfer ownership of a limited company rather than deal with a complex business structure.
Your Responsibilities of Running a Limited Company
The main responsibilities of running a limited company fall on the company director or the person who has set the company up. Unlike working for another company and being an employee, you have to get involved with the administration and finances or face prosecution from the authorities.
- Companies must keep company records and report changes to other stakeholders that might benefit the growth of the company, such as new employees, partnerships and allocation of shares.
- All income and costs must be recorded and one needs to file their accounts and their Company Tax Return on an annual basis. You will need to register for Self-Assessment and send a personal Self-Assessment tax return every year.
- You will be required to pay Corporation Tax which currently stands at 19% of company profits.
Failing to comply with these requirements above can lead to financial penalties, suspension and even the closing down of your business. Very commonly, if you do not submit your company reports or tax returns, your limited company will be closed down. Fortunately, if you set up a limited company, one can terminate it or ‘strike it off’ very quickly – but be sure to notify all other stakeholders including investors and shareholders before doing so.