Are you feeling a little overwhelmed, yet considering setting up a Ltd company? We have all the details you require right here if you’re unclear about where to begin or want to learn more about what’s required. You must file an application to Companies House, the registrar of companies if you plan to form a limited company in 2022. In order to ensure that your formation is processed smoothly, we’ve identified a few pieces of information that you must accumulate beforehand.
There are four ways to design your business, and they are as follows:
A sole trader is someone who conducts business alone.
A partnership is when two or more businesses or people engage in a joint business.
Limited liability company
The exclusive firm, better known as the Limited Company
What is a limited company?
The fact that the firm and the person are regarded as separate entities is the primary legal distinction between a limited company and a sole trader. The term “limited liability company” refers to the limited liability of the directors and shareholders. Your home, car, and any other personal property you may own as a sole proprietor may all be at risk if your business fails. However, you have some protection if you operate your business legitimately and in accordance with the provisions of the Companies Act; in this case, your private property will be shielded from creditors. This may give the impression that trading as a limited company is always a smart move, but there are some other factors to take into account.
We have a decent idea here at 360 Company Formations of the types of questions people have when they are considering “going limited” because we have been helping clients set up their firms for years. Regarding a list of some of the most frequent questions that 360 Company Formations has received, we will go into more detail about the requirements for a Limited company.
Will operating as a limited corporation increase my income?
You are likely to gain financially by operating a limited company for the majority of firms that generate an annual profit of more than £25,000. If you consult an accountant about ways to improve your company’s tax efficiency, you could still save money even if you make less than this.
As a limited business, will I pay less tax or roughly the same as if I were a sole trader?
Small businesses typically pay 20% corporation tax on their revenues, however, the amount and the structure of your company’s payments to you will determine your personal tax rate. As a limited company, you can also set aside money as a “reserve” in the business to use for future expansion, equipment purchases, etc. However, whether or not you reinvest some of the earnings in the company, as a sole proprietor or partner, you will still be subject to tax on the money you make. There aren’t many possibilities for efficiently organising your taxes, so you won’t be able to save as much money overall.
How much should I set aside as capital for my company and how much can I pay myself?
Despite the fact that you are free to choose, there are some aspects that will influence the advice an expert will provide you. There is little point in taking out more money than you actually need if the business is earning more money than you actually need at any given time because you will pay more tax on it as personal income than you would as corporation tax. You must make sure that you pay yourself enough to cover your outgoings. The remaining income can be used to pay dividends to yourself, which won’t trigger National Insurance and will enable you to reduce some of your yearly expenses.
What additional advantages come with doing business as a limited company?
Setting up a limited company has many advantages, and while the main one is that your personal assets won’t be in danger, there are other good reasons to think about it, such as:
Potential customers may view a limited corporation as a more credible and competent business. Depending on the industry you work in, it may be invaluable because some larger corporations are reluctant to partner with any business that isn’t limited.
It isn’t noticeably more difficult to operate and administer a limited business than it is to run as a sole proprietor. Almost always, the savings you may realise from tax efficiencies and changes in the law that could lower your costs far surpass this.
Since there is no time limit on when you can begin doing business as a limited company, registering your business might be a great strategy to secure the name since it prevents other companies from using the same name as you. This implies that if you plan to start a business in the future, you can register the name to make sure that no one else is using it. You can also register the name of the sole proprietorship you are presently operating to ensure that you are protected until you decide to switch to a limited company.
A limited company will be a more appealing option to a potential buyer than a business that you run as a sole trader if you decide to sell it.
What exactly is involved, and how difficult is the paperwork?
The documentation required to trade as a limited corporation typically takes 15 minutes every month. This entails preparing and submitting your annual accounts to Companies House, providing an annual return with the names and addresses of all directors and shareholders, preparing and submitting your tax returns for both your business’s corporation tax and your personal income tax, and paying your bills for both.
The administrative work required to maintain the pertinent records current in order to comply with the requirements is not overly difficult or time-consuming. However, it can be simple to overlook places where you might be able to save money if you aren’t an expert in the relevant tax regulations. You might not be aware of your options for paying VAT, for instance, or how to plan money withdrawals from the company in a way that minimises your tax liability. You can potentially save money in all of these areas and more by hiring a specialised accountant. They will also make sure you never forget a deadline for submitting official documents or paying your taxes.
Is a limited company right for your business?
Forming a limited company is simply one of the alternatives when deciding how to establish a new firm, which is a significant decision. Even if you are the founder, setting up a limited business entails creating a different legal entity from yourself. The company will own any earnings, not you, and you must take money out in the form of salary payments, dividends, or loans in order to obtain income.
As a sole trader, which is a common choice for small business owners, you’ll have full control over your enterprise and be entitled to all profits after taxes. Compared to limited firms, single proprietorships have a simpler establishment process. However, selecting the sole proprietor option carries some risk because you’ll be held financially responsible for any problems the organisation encounters.
What are the benefits of setting up a limited corporation, then?
For monetary losses, you won’t be held personally responsible.
The name of the company business will be legally protected.
It’s simple to transfer ownership of a business.
In comparison to operating as a sole proprietor, you can pay less personal tax.
Public or private?
You must choose the sort of company you want to form if you decide to proceed with forming a limited company. Options include:
A public limited company (PLC).
A private limited company (LTD).
PLCs are required to have at least two shareholders, two directors, and a company secretary, as well as share a minimum of £50,000 in company share capital. As a result, forming a private limited company is frequently preferable for new firms, small enterprises, independent contractors, and freelancers (LTD).
There are various ways to form a limited business.
You have two options for submitting your application directly: electronically through the Companies House website, or manually by filling out Form IN01. An alternative is to have a third party—typically a formation agent (this is where we come in to help)or your accountant—process the application on your behalf.
The expenses do vary; Companies House charges a set fee of £12 for applications submitted online or £40 for applications submitted by mail.
Most small business accountants will form a company on your behalf; they may do so for a one-time cost or at no charge if you become a client.
Even though the format differs depending on the application process, you must submit the same information to Companies House regardless of how you choose to incorporate your new company business.
1. Company Name
After deciding to create a limited company, you’ll need to come up with a catchy name for it. Finding a name is more than just a routine administrative activity; it’s also an opportunity to create a clever and distinctive company brand to present to your clients. Don’t just choose the first idea that comes to mind; instead, give it some thought. Instead, have fun with it and attempt to come up with 20–30 unique company names. You can play about with the word order or simply alter a few words here and there; they don’t have to be completely different. This is how advertising firms handle naming briefs, and it’s helpful for developing undeveloped concepts.
This ought to be original and free of “sensitive” words or phrases; in other words, remember you can’t use your name as a brand or pretend to be someone you’re not. It is worthwhile to take some time to select the ideal name for your company business.
2. Company Registered Address
You must have a Limited company physical address where you can receive official mail. Many contractors only use their own residential addresses for this purpose, but you might also choose to utilise a third-party service or even your accountant’s business address. The registered company address must be located in England or Wales if you are forming a business there. The registered company office address must be in the appropriate territory for businesses established in Wales, Scotland or Northern Ireland.
3. Company Officials
A Limited company must have at least one director in order to be formed. The appointment of a company secretary is optional although you may choose to do so. When you apply, you must have on hand the names, residences, nationalities, and birthdates of all of your officials. Directors can choose to use a “service address” in order to prevent their residential address from showing up on company public records if privacy is an issue.
4. Share Structure
You must choose how to divide up the stock in your new limited company business. Will you divide the shares with your spouse, other individuals, or yourself? Do you need different share classes? Dividends must be dispersed precisely in the same ratio as the shareholdings themselves when they are declared. It might be a good idea to consult an accountant on the optimum share capital structure for your company business.
5. Shareholders
You will need each company shareholder’s name, complete address, share class, and the number of shares they will own. Three further pieces of personal data are also required from you (in lieu of a signature). These include the town of birth, the last three digits of the phone number, the passport or National Insurance Number, the mother’s maiden name, the colour of the eyes, or the father’s first name.
6. PSC Register
All company businesses are now required to maintain a list of all “People of Significant Control,” which includes those who own 25% or more of the voting rights or the shares of a limited company. In order to keep the registrar current after the initial formation, this information is updated via the Confirmation Statement that all businesses are required to submit to Companies House each year.
7. Articles of Association
All Limited companies are required to have a set of Articles that serve as a “rule book” and regulate every aspect of how a limited company is administered, including the authority of directors, shareholder decision-making, voting rights, and dividend distribution. The bulk of the time, using “model articles” (a generic document) should be sufficient. Importantly, you cannot incorporate your company online if you choose to utilise your own revised articles for whatever reason. You must employ the postal service (Form IN01).
8. Memorandum of Association
This contract reveals that the initial subscribers’ original goal was to form a company. With the following language:
Each signatory to this memorandum of association desires to establish a Limited company under the Companies Act of 2006, and they each agree to join the company and purchase at least one share.
A list of all subscribers is then presented after this.
Simply checking a box when entering each shareholder’s information during the online formation process verifies that the shareholder has verified the specified form of memorandum of association. There isn’t physical documentation to deliver.
Who owns and runs the company?
A company is governed by its directors and is owned by its shareholders (members). The directors are always accountable to the shareholders and are required by law to act in their best interests. The directors may also be shareholders. You simply need one director and member, who can both be the same person. The job of the company secretary is optional, but in the event that one is not present, the company director must carry out the position’s responsibilities. The company secretary, or the director if there is no company secretary, must make sure that all legislative procedures are followed and adhered to. The company director is responsible for managing the company. This includes handling meeting minutes and submitting paperwork to Companies House. The director is the one who is accountable for the company’s acts, whether or not a company secretary has been appointed.
The responsibilities you have as a limited company director
When your business is up and running, you’ll be prepared to take advantage of the many advantages of running a company. You should be conscious of the new obligations of becoming a corporate director, though. Here is a brief list of events to note on your calendar all of which, will help with the running of your company in a smooth way.
You must register your company business with Companies House.
Annual reports for your company business must be submitted to Companies House.
Every year, a Confirmation Statement is required. You can do this one of two ways online or by mail. This is a filing obligation that was replaced by the Annual Return in 2016. (Form AR01).
Each year, send HMRC a Corporation Tax return. Within nine months and one day of your Limited company business’s year-end accounting, you must pay any unpaid taxes.
Submit your yearly personal tax return and register for self-assessment with HMRC.
You must report your employees’ payments and deductions to HMRC on or before their payday if you have employees and are managing the payroll for your company business. Each month, you must pay HMRC what you owe.
You must register for VAT and submit your VAT returns online at the end of each fiscal quarter if your VAT taxable turnover is higher than the VAT threshold.
Keep accurate company business records.
How to maintain your limited company with the aid of an accountant
You will save a lot of time if you hire an accountant to assist you in managing your obligations. Your company and clients should be your first priorities as a Limited company business owner. An accountant can handle those tedious administrative responsibilities, freeing up your time to focus on your Limited company and what really demands your attention.
An accountant will manage the heavy administration that comes with running a limited company in addition to dealing with other issues.
Keep your Limited company’s money organised.
Provide you with advice on key Limited company business issues
To avoid unpleasant surprises, estimate your taxes and don’t miss any critical deadlines.
How do I establish a new business in the UK from abroad?
If you wish to register your company with Companies House and establish a place of business in the UK, you will need to register in a somewhat different manner with companies that are situated abroad.
Since unincorporated bodies and partnerships cannot register as companies, it is essential to get advice from the Department for International Trade.
Within the first month of starting your business, you must fill out an OS IN01 form and send it to Companies House in order to register. You must enclose a completed registration form and a £20 registration fee, which can be paid by postal order or check.
Is a business bank account necessary for a limited company?
A fundamental tenet of company law is that a limited company is a distinct legal entity. This implies that you cannot mix personal and business funds. You must open a bank account in the name of your limited company.
The good news is that having a separate limited company bank account provides advantages besides simply keeping you legal.
First of all, doing your accounts will be simpler.
A separate bank account will spare you from having to sort through your statements to determine which transactions are business-related and which ones are personal if you handle your own accounting. Additionally, your accountant will appreciate you for outsourcing the work and may even charge you less.
More specifically, it can be against your bank’s rules and conditions to use a personal account for business. If they learn, they might close your account, leaving you in a precarious position.
Conclusion
One of the best methods to be compensated for your labour is to set up a company. You may define your brand, own all you do, operate your firm most tax effectively, and apply for jobs that a sole trader would not be able to obtain by setting up a limited company.
In essence, having a company means that even if your business fails, your personal assets won’t be at risk. Additionally, because your firm has more credibility, it will be simpler to attract investors, suppliers, and clients. You can pay less tax as a limited company than as a lone proprietor. Your business name will be legally protected because you are registered with the UK Companies House.
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