A limited company is a business that has its own legal identity, which is separate from the owner of the company, the shareholder, and the directors. Even if the owner is the only individual involved, the company will still be separate from them as its own legal entity. In its own right, the business can enter into its contracts and possibly be sued, and the owner/ directors/ shareholders do not have to pay the debt themselves by selling their assets. Money cannot be taken out of the company by the directors and shareholders whenever they want because of the legal separation a limited company owns. The profits the business earns belongs to the company but not the individuals.
Why you Should Set up a Limited Company?
Having a separate legal identity is one of the best reasons to set up a limited company. This means, the company will be liable if anything goes wrong, and not you personally. It also means you will only lose the assets that you have put in the company personally. It is more professional to have a limited company. The reason for this, it makes it straightforward to guarantee to have investors, suppliers and will also make it simpler to sell the company when needed. Another great reason is it is tax efficient. Depending on your profits, having a limited company is better than being a sole trader for tax purposes. You will pay corporate tax through your business, and you can pay yourself your salary.
Is Setting up a Limited Company Right for you?
Before setting up a limited company you need to do your research and decide if maybe being a sole trader would be better. Being established as a sole trader is a common business structure within the UK. At the beginning of 2020, there were 3.5 million sole traders established, which is over 50% of total businesses in the private sector. Although it is easier to set up a sole trader business, one must consider that as a sole trader you will have unlimited liability in return, making you personally liable should something goes wrong. The best advice from the professionals is to weigh out your options, compare the two and choose what is right for your business.
How Many Directors Should you Have?
When you have a limited company, you need to have at least one director responsible for running the company. You could be the sole director on your own however, there is no limit to how many directors you wish to appoint to your company. The directors’ responsibilities will range from financial to legal. The responsibilities they have been directed by the GOV.uk site listed below:
- Using skills, experience, and judgment they must try to make the company a success
- Make benefiting decisions for the company and not themselves
- Pay corporate tax
- File company tax forms
- The articles of association will show the companies rules, that they must follow
If they feel they may benefit personally from a beneficial transaction, they must let the shareholders know - Make sure the company’s accounts of the business’s finances are true and fair
Keep company records and report changes to HMRC and Companies House - If the director does not comply with these responsibilities they could end up with fines, penalties and possibly even prosecution.
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Find your Shareholders
Like with directors, a limited company needs at least one shareholder (they can also be directors of the company), like directors, there is no limit to the number of shareholders you have. If you are just beginning to start up your company, the shareholder can be you, Meaning, you own 100% of the shares and therefore, own the company and have full decisions on the running of it. Once you have determined who your shareholders are, you will be required to provide all their information when you register your company with Companies House. You will need to inform them of the name and addresses of all your shareholders and how many shares they own and the value of those shares.
What Records Should you Keep?
There are two specific records you need to keep when running the company. These are records about the company and financial and accounting records. You could be fined £3,000 or even be disqualified as your company director if you don’t keep accounting records.
Below are listed all the documentation that should be a part of your company records:
- Directors, shareholders, and secretaries’ information
- Shareholders vote results
- Details on debentures and who is paying them
- Share transaction details
- Details of loans and or mortgages secured against the company’s assets.
- What payments the company must make if something goes wrong under the company’s fault.
Financial and accounting documents that you need to keep are:
- Details of all assets owned
- All the goods bought and sold (and by who)
- Stock the company owns at the end of the financial year and the stocktaking used to figure that out
- Debt details (owes and owed)
- Tax returns
- Calculations about your company’s finances
You should keep your records and documentation for 6 years, however, there are cases where you might need to keep them longer. For example, if you buy something that lasts longer than 6 years.
Seeking some Advice
These are only some of the main ways to set up your limited company. There are other things you will need to consider, research, and do. This can be a very time-consuming task like opening a sole trader, getting help with everything you will need to do can be key to a successful and smooth start-up. A concierge service like The One World will be able to support you and help you achieve this goal. Their experienced team of professionals will take the time-consuming steps to open a limited company off your hands so you can relax and become stress-free while becoming a company owner.
