Setting up a business can be fraught with issues from the get-go, but having the correct information at the start can go a long way in avoiding the worst. Setting up a limited company is no different, and starting one varies from company to company and from person to person. Still, a limited company allows for autonomy, flexibility, and tax benefits for people who create and run small businesses. This post will cover the main things you should consider to make your life easier throughout the process.
What Is A Limited Company?
A limited company (often abbreviated with Ltd at the end of the company name), is a form of business organization where the owners are not held responsible for the debts of the company. As a type of business structure, it offers the limited liability protection and tax efficiency of a corporation while retaining the advantages of a partnership or sole proprietorship. Limited companies are relatively easy to set up in the United Kingdom. They are governed by The Limited Liability Company Act, set up way back in 1855, but revised in 2006 with a new act called Companies Act 2006.
Benefits Of Setting Up A Limited Company
In the UK, limited companies are one of the most popular types of companies due to the benefits they present. One of the main benefits of a limited company is that its members are protected from personal bankruptcy. The company members are not held responsible for any debts incurred by the company, so they are protected from potential losses. Furthermore, setting up a limited company in the UK involves fewer formalities than other companies, making them easier to set up and maintain. Additionally, they have less restrictive rules about who can be a member or director, which means that you’re not limited to having just one person in charge. Some of the main advantages include:
- Tax benefits: The main tax advantage you will have over something like a sole proprietorship or partnership is that a limited company doesn’t need to pay national insurance or income tax. Instead, they pay corporation tax on their profits.
- The company will be its own legal entity: Your company will be its own entity separate from you. With a sole trader, your business will be operated under your identity, presenting a raft of issues that don’t arise with a limited company.
- Limitation of liabilities: Arguably, the most significant advantage of a limited company is that you are not personally responsible for your business debt.
- You will appear more professional: In some cases, becoming a limited company is required to gain more clients in specific industries. It can look more attractive to potential investors and open up new avenues of revenue unavailable to other business types.
- You might find better access to financing for your business: As a limited company, you will have a far better chance at securing funding. Moreover, you will likely reduce your borrowing costs thanks to more favorable interest rates.
- Your business name is protected: Because you will need to register your name, it will automatically become protected under law, meaning that nobody else can use or trade under it.
How To Set Up Your Limited Company
If all of these benefits sound appealing, and you are in the position to do so, setting up a limited company might be the best move you can make for your company. Despite this, many factors still need to be considered regardless of how straightforward the process is.
Decide On Your Company Name
An essential aspect of setting up a limited company is choosing a name that portrays your business objectives. A good name provides clarity and consistency. A poorly thought-out name can lead to confusion among your customers and even legal issues with trademark infringement. When choosing a business name, it’s best to avoid using names or similar sounding of other businesses or people in the same industry as yours because of the chance of confusion or trademark infringement.
Set Up An Official Address
Making the right location choice for your business is a critical decision. It’s essential to consider the proximity of other companies in your industry, public transportation routes, and demographics when deciding where to locate your business. The location will also be required when you come to register the company.
Choose Your Company Director Or Directors
In the UK, a limited company needs at least one director, but it is often considered good practice to have at least two to provide you with an exit strategy if you ever want to move onto greener pastures. Whoever you choose to be the director of the business must be over 16 years old and will have a range of financial and legal responsibilities to contend with. Therefore, you should choose someone you believe is competent enough to perform their duties effectively.
Select Shareholders Who Will Own The Business
A limited company needs at least one shareholder, which in most cases will be you. Whoever is the sole shareholder will own 100% of the business and, in theory, have total control over how operations are handled. However, if you are setting up a limited company, the chances are pretty high that you will have given away some equity to raise the funds needed to start or expand the business.
Draft Articles Of Association And A Memorandum
A limited company’s governing documents are its memorandum and articles of association. They provide a framework for how the company will function and establish the rights and obligations of members.
Maintain Company Records
If you are a business owner, you must be aware of the importance of maintaining company records. They provide many benefits to small businesses. They also help manage its finances, streamline operations, and prepare for tax payments. In addition, they help make essential decisions that can improve the company’s performance or even save it from financial ruin. Maintaining accurate records also helps avoid legal troubles that may arise if a customer or a competitor sues the company.
Officially Register Your Company
The final step is to head over to Companies House and register your business. This is the most straightforward step of the entire process and typically involves you submitting various documentation, including your name, address, and other relevant things.
Setting up a limited company is a relatively pain-free experience if you understand the processes involved. Hopefully, this post has provided you with the requested information to simplify the process.