Company formations

What Is A Limited Company?

A limited company is a way that you can run a business while keeping it separate from your own personal finances. Unlike operating as a sole trader, or as an unincorporated partnership (as opposed to an LLP), the company is a legal entity in its own right and can buy and sell property in its own name, hire employees and take out loans etc under its own name.

Forming a limited company provides considerable benefits in terms of limited liability, but there are also increased legal and financial obligations as well as the extra administrative duties that come with meeting the reporting requirements with Companies House.  As of April 2008 it is possible to have a single director in a company (rather than requiring a separate company secretary as well.)

A limited company is owned by its shareholders (who may or may not also be the directors). A limited company cannot sell its shares on the stock market, as it is necessary to be a Public Liability Company to do this (PLC.)

If The Company Fails

In the event that the company does not succeed, the directors and shareholders are offered protection by fact that liability is limited. This means that their own assets, such as money in their bank accounts or equity in their properties, cannot be affected by the failure of the company.

Taxation

Unlike sole traders, who are taxed under the self-assessment scheme, companies are subject to Corporation Tax, which is payable on all profits.

All limited companies are subject to the legal reporting requirements at Companies House. It is not possible to form a company without incorporating it at Companies House. Once it has been incorporated, it must submit an annual return and annual accounts.

Benefits Of A Limited Company

Aside from the reduction of risk that comes with limited liability, people often choose to use the limited company structure because it looks more professional, and can help you to be able to raise finance in order to grow or develop the business.

In some industries, trading under a limited company is deemed to be ‘the norm’ and it may be difficult to secure contracts if you trade in any other capacity. Another reason to incorporate could be if the nature of your business means that you take considerable risks that could have devastating consequences for you as an individual if you didn’t have the protection of limited liability. For example, if you place a high value order with a supplier, because of an order your business has received – but which could be cancelled – you would benefit from limited liability.

There are also tax incentives, but it is always advisable to seek a professional opinion from a solicitor or accountant as this depends on individual circumstances. However, a limited company does provide increased flexibility in terms of minimizing the amount of tax that the company is liable to pay.

Disadvantages of A Limited Company

Aside from the increased legal and reporting restrictions, the costs of using an accountant to deal with filing annual accounts at Companies House are generally higher than the costs associated with self-assessment. It is possible to change status from a sole trader to a limited liability company, so if you are unsure you can make the transition later on. It is wise, however, to seek professional advice in these circumstances.

Click Here to register your own company today.
The process is quick, easy and simple.