We often speak to people after they’ve set up a limited company and are needing help with fulfilling all the requirements of having one, often costing them money they were not aware they would need to spend - now we’re not saying you shouldn’t have a limited company, it’s just important to know all the facts.
So what is a limited company then?
All limited companies are registered with Companies House and have to comply with the Companies Act 1996. It’s owned by the shareholders (usually, unless the company is limited by guarantee) and must have at least one director. Legally it’s a separate entity, so you (as a director) are separate from it and the shareholders and directors are not liable for the companies debts unless they’ve done something dishonest or signed personal guarantees for the debts. Limited companies have to have certain information (including financial information) available publicly and have certain documents, such as Articles of Association.
With all things like this, there’s always a number of advantages and disadvantages to being either trading as a limited company or sole trader, but these can vary from person to person, a disadvantage for one could turn into an advantage for another, so it’s important to make sure you have advice specifically for you, rather than us putting a general list here!
Directors of the company also have a number of responsibilities, including ensuring the annual return & annual accounts are produced, allocating shares if more are required and ensuring that the registered details of all the directors and the company are kept up to date, with big fines for not complying with these. Getting these annual returns & accounts prepared and submitted is usually where people come unstuck and the point they realise they need an accountant.
So while you’ve got some good advantages to a limited company, for some the additional administration and associated costs involved with this are not worth the benefits. It’s relatively easy to change from a sole trader to a limited company (we did!).
If you’re unsure of what to do then get in touch, we can go through your plans and see what company status will work best for you.