Is a limited company right for you?

Published on Thu, 04 Feb 2016 in

limited-company-advantages-disadvantagesRecent government talks and media coverage may have left you considered that your working situation could possibly benefit you if you set up as a Limited Company but you’re unsure if this applies to you?

What is a Private Limited Company– a limited Company is recognised as a legal body, detached from the person or persons who formed it and/or the directors and shareholders i.e. it has a separate legal presence and the officers (company secretary and directors) are self – employed working on behalf of the company.

An overview:
once registered as a private UK Limited Company it is considered to be one of the most cost effective and easily managed business structures.

Some of its considered features include:

  • Company director, secretary or shareholders are not required to hold any specific qualification.
  • There are no nationality or residence restrictions for the company director, secretary or shareholders.
  • A private limited company can just have one director who may also be the only share holder.
  • Upon incorporation a private limited company may start trading immediately as it is does not require a trading certificate at the start of business.

What is Incorporation?
Incorporation of a company is the process of registering the company at Companies House and declaring it a legal entity independent of its owners.
The Companies Act legislation declares that a private limited company can be formed for any lawful reason by one or more persons with one subscriber (or shareholder) to the Memorandum of Association.
It can be a daunting task reading through the associated terms used by Companies House, so here are the meanings of some of the more common ones:

Company Officers Company Secretary or Directors
Members Shareholders
Subscribers Initial shareholders upon formation
Memorandum of Association The legal document which establishes the objectives of the Company. Usually a standard set of documents are used which will encompass the majority of trading types.
Articles of Association The legal document which establishes the rules for the running of the Company’s internal affairs. Usually, a standard set are used which will encompass the majority of trading types.

Could it be an advantage for you?

  • A private limited company has a separate legal existence. As such the acquired assets are held by the company itself and all subsequent contracts signed on behalf of the company. The directors and secretary act only as agents for the company. As a result the company is protected from being dissolved in the event of the resignation, bankruptcy or death of a director.
  • Limited liability as the name suggests is another advantage of a private limited company. The shareholder’s, self-employed for the company, are protected in the event of anything going wrong their liability is limited to the value of the shares held by them should things go wrong.
  • Once a company has been incorporated its company name which is listed at companies house will become protected – preventing others trading under the same name.
  • Tax often seen as the more attractive advantage of running a business as a limited company, as it is likely that you will be entitled to pay less personal tax than you would as a soul trader. The company will be required to pay corporation tax on the company profits which again may equate to a lower figure than if paying income tax on the same profits. Additionally, through drawing dividends together with a smaller salary savings can be made in National insurance contributions
  • If disputes occur between shareholders a private limited company will have a structured procedure in place to assist resolving these.
  • Sourcing additional funding for business interests is easier in that the company can offer shares to secure external interest.

Article produced by 4th Feb 2016