Why set up a Limited Company instead of remaining a Sole Trader? There are many reasons, as outlined below, with one of the key reasons being financial protection; limited liability protects personal assets from business liabilities. Tax efficiency is another key benefit, allowing for strategic tax planning and potential savings through dividends and allowances, which an accoutant like PBT can help you with! Moreover, the ability to raise capital through share issuance and access to finance avenues not typically available to Sole Traders can fuel business growth. In general, the separation of the company's legal entity from its owners facilitates brand protection and offers flexibility in ownership and succession planning, making becoming a Limited Company by far the best choice for financial and legal protection. 

1. Why a Limited Company? 

Registering as a Limited Company as opposed to a Sole Trader means that you’re setting up a legal entity separate from yourself. You may want to be registered as a Sole Trader if you want to keep all profits after tax, however you will be financially responsible if anything goes wrong with the business. As a Limited Company you won’t be personally liable for financial losses however any profits will belong to the company, not you. 

2. Public or Private? 

You can register a Limited Company either as a Public Limited Company (PLC) or a Private Limited Company (LTD). PLCs must have at least £50,000 in share capital with at least two shareholders, two directors and a company secretary. It is often more suitable for start-ups and small businesses to form a LTD. 

3. Choose a Name! 

Read the Companies House naming rules which includes stipulations such as ‘If your name is too similar to another company’s name or trade mark you may have to change it if someone makes a complaint’. 

4. Register your Limited Company 

You must register your new Limited Company with an official address and a standard industrial classification of economic activities (SIC) code. Check what your company's SIC code is on the government website. You can register for Corporation Tax at the same time as registering your company. You must register for Corporation Tax within three months of when you start doing business. It costs £12 for you to register your company online and once registered you will receive ‘certificate of incorporation’ to confirm that the company legally exists, with the company number and date of formation. 

5. Appoint a Director 

You need at least one company director to register a Limited Company. As a company director you will be legally responsible for company records, accounts and performance. Appointing a company secretary is optional. Company secretaries are usually appointed to reduce the legal duties of the company directors, but can also be a company director. This role can also be assigned to a company’s auditor or to an ‘undischarged bankrupt’. 

6. Shareholder or Guarantor 

A Limited Company must have at least one shareholder or ‘guarantor’, who may also be a director. A Limited Company can be ‘limited by shares’ or ‘limited by guarantee’ accordingly. ‘Limited by shares’ means that the company is owned by shareholders who have certain rights. A shareholder is an individual who puts money into the company and receives a percentage of ownership of the company in the form of shares. ‘Limited by guarantee’ means the company has guarantors and a ‘guaranteed amount’ instead of shareholders and shares. This is often a good option for not-for-profits, as it provides personal financial protection. 

7. Get the Required Documentation 

Documents required for companies formed in the UK under the Companies Act 2006 are a ‘memorandum of association’ and ‘articles of association’. A ‘memorandum of association’ is a legal statement signed by all initial shareholders or guarantors who agree to form the company. If you register your limited company online, a memorandum of association will be created automatically. ‘Articles of association’ is a governing constitutional document that includes information about how the company should be run. This information should be agreed by the shareholders or guarantors, directors and the company secretary. 

8. Keep the Right Records 

Limited Companies have to keep records about the company itself in addition to accounting and financial records. You may want to hire an accountant to maintain accounting records as HMRC may check your records. Using accounting software can also help keep your accounts in order, which will be beneficial to your company if you receive an HMRC tax investigation. 
Company Records: 
• directors, shareholders and company secretaries 
• results of shareholder votes and resolutions 
• promises for the company to repay loans at a specific date and who they must be paid back to 
• promises the company makes for payments if something goes wrong and the company is to blame 
• transactions in which someone buys shares in the company 
• loans or mortgages secured against the company’s assets 
People with Significant Control: 
The PSC register must include details of anyone who… 
• has more than 25% shares or voting rights in your company 
• can appoint or remove a majority of directors 
• can influence or control your company or trust 
• A PSC register is required even if you have no people in your company with significant control. 
Accounting Records: 
• money received and spent by the company 
• details of company-owned assets 
• debts the company owes or is owed 
• stock the company owns at the end of the financial year 
• stocktakings you used to work out the stock figure 
• all goods bought and sold, along with who you bought and sold them to and from (this doesn’t apply if you run a retail business) 
Additional records include receipts, invoices and bank statements. You can be fined £3,000 by HMRC or disqualified as a company director if you don’t keep accounting records. If you keep your records somewhere other than your company’s registered office address, you must tell Companies House. 

9. Use Accounting Software 

In addition to hiring an accountant it can be beneficial to use accounting software to keep records of your finances. Businesses above the threshold of £90,000 are now required to store accounting records digitally and submit VAT returns using an MTD compliant accounting software as a part of Making Tax Digital (MTD) for VAT. 

10. Business Bank Account 

Your finances for a Limited Company have to be separated from personal finances since it is a separate legal entity from its directors and shareholders. You do not legally have to set up a business bank account for a Limited Company, however it can make it easier for your company to manage your business if you have one set up. 
Why not let us help you? 
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