Making your business a limited company usually involves higher costs compared to being a sole trader. However, it could certainly be a smart move. This is obviously a pretty big decision to make. You’re probably looking to do some research before completely changing the basic makeup of your business. To help you see the whole decision a little more clearly, here’s a guide to setting up your firm as a limited company.
The decision to make your business a limited company centres around your personal financial liability. If you’re a sole trader, for example, and your business hits a wall, you’ll be personally liable for paying any outstanding debts. You’d even be at risk of personal bankruptcy if your debts have piled up enough! By having a limited company, you’ll have some effective protection against this. What makes a limited company distinct is that it exists as a legal entity separate from you, the owner. Due to this, the finances of a limited company will be completely divorced from the personal finances of the owner. There’s a difference between ‘private’ and ‘public’ limited companies. Private limited companies can have several shareholders, but can’t sell those shares publicly. Public limited companies, on the other hand, regularly sell their shares on the stock market.
Being a director of your limited company will limit your risk of loss to the money you invest in the company. You’ll also be responsible for any loans you take out if you provide a personal guarantee for your company. So, if you’ve decided that this is the way your company should go, there are a few more steps you need to take. To register your limited company, you’ll need to go through the gov.uk portal. This can be a little tricky, but if you have an accountant or solicitor on-hand they’ll be able to navigate the whole process for a small fee. If you want to simplify it even more, you could try going through a company formation service. There are many company names which you can buy ready, and this is usually the easier route. If you want to form a completely new limited company, there’s some paperwork involved. You’ll need to submit a memorandum of association, articles of association and a completed IN01.
Yes, being the director of a limited company can reduce certain risks. However there are certain responsibilities you have to keep in mind. All limited companies must have at least one director, who can be a shareholder. A person can’t hold this role legally if they’re under 16 years old, or are in the process of bankruptcy. There was a time when all limited companies required a company secretary. Secretaries had to notify the government about changes in the management of the company. These days, however, those responsibilities and many more fall on the director(s) of a company. This information is really just a sliver of all there is to know about running a limited company. Hopefully though, it’s cleared up a few of the fundamental questions you have!