Should I Start a Limited Company?
So, you’ve got your idea and you want to start your own small business but don’t know whether you should act as a sole trader or a limited business?
Or maybe you’ve been a sole trader for a while and think transitioning to limited is the next logical step?
In this blog I will outline what it means to own a limited business in the UK and what your responsibilities will include. I wrote a similar blog on being a sole trader which you can read here.
As with all my blogs the information is generalised and not intended as personal advice. If you would like to talk regarding your particular circumstances, get in touch here.
To start with, why is a limited company called a limited company? (Especially as there is actually more to do!)
Well, it’s because it limits your personal liability. The company becomes its own legal entity and so it becomes responsible for any debts. As a shareholder and/or director (we will come to those) of a limited company you would not be liable for any outstanding debts the business incurs – this is very different to being a sole trader who is personally responsible and would have to pay outstanding business debts from personal assets.
While this can all feel a bit scary when laid out like this, remember working with an accountant can help to ensure smooth financial administration within your business. Setting up as a limited company, because it’s a separate legal entity, can be a great investment if you may ever consider selling your business.
If you decide to set up a limited company the first thing is to register with Companies House. Only one business can be registered under one name so it’s definitely worth checking before you start ordering branded mugs!!!
It only costs £13 to register so don’t pay ridiculous fees for someone to do it for you!
During the registration with Companies House you will be asked to name your new limited company’s shareholders and directors. Simply, shareholders are the owners of the business, and the directors are the people who run it. You can fulfil both of these roles.
Being a director of a limited company comes with responsibilities. The director is basically in charge of the management of the business and must always act with the business’ best interests at heart. This includes ensuring your accounts are submitted to both the HMRC and Companies House annually and within certain time limits!
A limited business must pay corporation tax and it is important to note this is different, separate, and does not exempt you from, a self-assessment. Remember, a limited company is a separate legal entity to you and so there are separate company and personal taxes.
Speak to an accountant like me about the best way to plan for your taxes.
If you came here to find the simple answer to the question: ‘Should I open a limited company?’ you may be feeling disappointed I’ve not specifically said yes or no. That’s because there really is quite a lot to consider! I am able to run your current figures through a calculator to know almost to the penny whether or not you will be better off as a limited company director! So when I say it's a good idea to reach out - I really mean it!