Running a Limited Company – What You Need to Know

April 16, 2018 1:32 pm Published by

Running a limited companyLimited companies are one of the most popular legal structures in the UK, you will find them across all different sectors and industries.

Limited Companies are treated as separate entities to the individuals that own them. This means that shareholders in the company are only liable up to the value of their shares, although directors have legal responsibilities in the way that they are expected to run the company, which means they may have some personal liability.

Find out more about the advantages of incorporating as a limited company, as well as some important things to consider before taking this legal route.

Why Would You Be Limited? – Benefits Of Being A Limited Company

As mentioned, one of the key drivers for incorporating as a limited company is that the business is treated as a separate legal entity, giving shareholders legal protection. Other advantages of setting up as limited include:

Limited Liability – Meaning that owners are not personally liable for financial losses made by the business. Personal assets are all protected by limited liability should the business fail, subject to directors adhering to their legal duties set out under the Companies Act.

Better Opportunities – In comparison to being a sole trader or partnership, limited companies tend to attract bigger clients as they will give the impression of a well set up business and appear more credible. For sole traders, becoming limited is often the next logical step in growing their business.

Lower Overall Tax – Running a business as a limited company for a sole director can result in paying less overall tax than with other legal structures. Limited company profits are subject to Corporation Tax, which is currently set at 19%.  A director can choose when to withdraw the available company profits through a basic salary supplemented by dividends to suit their personal requirements, unlike a sole trader.

Management Flexibility – In a limited company, it is possible to transfer ownership of shares. This can prove beneficial if a shareholder wishes to retire or work less.

How Do You Set Up A Limited Company?

The process of registering a limited company is straightforward and can be done online or by post. Registering online will result in company registration within 24 hours at a cost of £12, using the postal method will cost £40 and take 8 to 10 days.

Once you have registered, you’ll receive a certificate of incorporation and you will need to register for corporation tax within 3 months of starting to do business – you will get a penalty if this is completed late.

To complete this process, you will need:

  • A suitable company name – cannot be the same as another limited company.
  • An address for the company.
  • At least one director.
  • Details of the company’s shares – you’ll need at least one shareholder to set up, but consideration should also be given to the division of shares and the type of shares that will be used.
  • Shareholders to agree to create the company and the written rules.
  • Details of people with significant control over your company.

Considerations for Directors of Limited Companies

Whilst limited companies hold a whole range of benefits, there are some important considerations for directors to think about before registering as a limited company:

  • Administration and accounting costs are generally higher than other business structures.
  • There is a higher initial cost of setting up the business in comparison to other business structures.
  • Any income withdrawn from the company is subject to taxation.
  • Your personal details are publicly available at Companies House for anybody to view.

What Are the Accounting Requirements of a Limited Company?

In comparison to the self-employed, limited company accounting requirements are fairly extensive. The director of the company is responsible for ensuring the following accounting duties are met:

  • Filing account and tax returns to HMRC.
  • Keeping accounting records and paying corporation tax.
  • Registering and filing the self-assessment tax return.
  • Keeping records about the company itself as well as its finances and accounting.
  • Completing a Confirmation Statement and reporting any changes in your business to Companies House.
  • Setting up payroll when hiring your first employee or you are paying yourself as a director.

As with many responsibilities relating to accounts, penalties can be issued for incorrect or late filing; you can also be prosecuted or disqualified if you don’t meet your responsibilities as a director.

Need a Hand?

With all the benefits that come with being a limited company, it is no surprise that there are so many in the UK. However, making the initial step to setting up a limited company can seem daunting.

At First Call, we offer a comprehensive accounting service for limited companies, offering expert advice and ensuring you stay compliant. Why not give one of our specialist team a call today on 0117 379 0810 to find out how we can help you.

 

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This post was written by Steph Roffey

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