Whether you are a contractor or starting a business, the idea of setting up a limited company is an exciting proposition. Setting up a limited company gives you the opportunity to start something on your own and break away from a rigid business structure; it has the potentiality to be a liberating and lucrative endeavour. But where do you start?
What may seem like an extremely daunting process can actually be quite simple. To get you started, read on for some easy and digestible tips to follow to set up your limited company.
Understanding The Limited Company
Firstly it is important that you understand the fundamentals of what a limited company is and what it running one entails. The limited company is an organization which is called a ‘moral person’ by 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. This need not be off-putting; a bank account for a limited company can be set up in a mere 24 hours.
What You’ll 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
If you wish to significantly change your business proposition or re-brand with another name, you can always become a ‘trading style’ of that limited company. Google, for example, is 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 possible costs. In fact, setting up a limited company is very inexpensive as a means of encouraging 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 a 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:
· Limited Liability
If you run a limited company, you are protected should your business start to blunder and profits aren’t generated. As a director, you will not be personally liable for the financial losses made by the company, assuming all the rules of conduct have been adhered to 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 strictly prohibit other businesses from using your company name, or anything deemed too similar. For this reason, when naming your company you must perform the relevant checks to ensure that you are not name-poaching (if even unknowingly) if you want your company to be legally credible.
· Tax Benefits
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, optimizing your tax efficiency. This allows you to take charge of your own tax liability with the potential to save on any National Insurance costs and claim any business expenses to reduce the amount of tax you pay.
· Professional Image
Having the status of a limited company gives you a sense of legitimacy and professionalism, which will allow your company to be respected and trusted, and thus you will build relationships with clients and even form business partnerships.
For certain industries and types of loan, 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. Therefore, being a limited company in the loans industry is advantageous.
If you are a sole shareholder in your business, you own the business in its entirety. 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. The virtue of this is flexibility, which is important in a business context as circumstances are always subject to change.
The Responsibilities Involved in 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 are required to manage your company’s 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. Companies that do not submit their company reports or tax returns are very commonly shut down.
For more information on starting your own business, or the loans industry, visit our blog page here.