Limited Company – A Quick Guide To Setting One Up
Are you considering setting up a Limited company? Are you freelance and self-employed and think you’d prefer to trade through a Limited Liability Company? Well, HMRC has created a useful tool to help individuals better understand the processes that one needs to go through when setting up a limited company. The resource, available here, goes through step-by-step the entire business registration process. However, we decided to turn it into a simple-to-understand article for your convenience.
Why Should You Consider Setting Up As A Limited Company?
The tried-and-tested route of a sole trader is common in the UK – also known as self-employment. However, there are major advantages of incorporating your business as a limited company. Here are some of the benefits.
Limited Company Tax
One of the biggest advantages of running your business as a limited company surrounds the fact you will pay less personal tax than someone who is self-employed. Limited companies are subject to Corporation Tax which is set at 19% in the current 2019/20 tax year. The tax savings continue if you are a shareholder and a director, you can “draw” your income in the form of “share dividends” and take a smaller salary that would be subject to national insurance contributions as dividends are taxed separately. As opposed to self-employment, where all your income is subject to NIC, a limited company entity could help you reduce your tax liabilities.
Another benefit of Limited Company status is that it is a completely separate legal entity from its owners. When you’re self-employed your business and you are “one”. However, from a Limited Company perspective, you as an individual is a separate legal entity from your business regardless of your shareholding ownership structures.
When you are running a self-employment business you have no protection in regard to business losses and failure. You could lose all and everything linked to your own personal financial environment. If you, for example. setup a self-employed business with a loan leveraged from your home, you could lose your home. However, as a Limited Company is a separate legal entity from you, it also includes limited liability. If there has been no fraud committed, you will not personally be liable for any losses made by your own business. This gives you added protection if the worse happens to your start-up
When working in certain sectors, operating through a Limited Company can provide you with a more professional image. Some companies won’t trade with self-employed contractors. So, having a Limited Company could help create a more professional image for your business brand.
Limited Company Funding
As has already been stated, a Limited Company allows for limited liability and it is a separate legal entity. This means a Limited Company can find it easier to find additional investment or funding because of the separation – a form of separation sole traders don’t have.
Naming Your Limited Company
Once you have registered your company with Companies House, your business name is protected by law. No one else can use it and anything “too similar” can be legally challenged. You don’t get this level of protecting when trading as a sole trader. Others could trade under your name as well without legal recourse.
A Limited Company can “issue” shares. These shares have various “classes” and voting differences. This means you can sell or transfer ownership of the company to others. One way is for start-ups to sell a percentage of shares in exchange for capital. Many start-ups do this to help fund growth. The entire process is governed by a Shareholder Agreement.
Limited Company Costs
Lots of people assume running a Limited Company is costly over a sole trading entity. But you can set up a Limited Company for under £50 – and given the benefits that are cost-effective spending.
Prestige Business Management can help you transition from a self-employment business entity to a Limited Liability Company. We can help you navigate Companies House, help you with your Limited Company accounts, VAT registration and more.
If you want advice and support during this stressful period of transition from self-employment to Limited Liability Company status, why not call Prestige Business Management today on 0203 773 2927?