Running a Limited Company
If you are considering setting up as a Limited Company, there are a number of things that you must do, some of which you are legally obliged to comply with.
As with anything, there are of course pros and cons to setting up as a Limited Company, and you will, therefore, have to weigh up advantages such as having more freedom to make your own decisions, with the adding responsibilities and risks involved in trading as a Limited Company. We have compiled a list of some of the main points to help you get a better understanding of what is involved and hopefully enable you to make a much more informed decision.
Advantages of being a Limited Company
There are numerous advantages to registering your business as a Limited Company. Firstly, it offers you protection. Should something go wrong with your business, you will have limited liability. This means that you will only lose the capital you have put into your business, protecting your personal assets – unless you have specific personal guarantees. This means your home will remain safe should you find your business begins to experience problems. Secondly, as a Limited Company, you will only be required to pay corporation tax on your profits, not total income – this alone can have a significant effect on the amount of tax you will have to pay.
Another benefit of registering as a Limited Company is the flexibility it provides you in the future. As your business grows, there may be a need to change its structure. As a Limited Company, you can easily issue new shares, appoint new directors and even change its name if needed. Such freedom is very important and makes becoming a Limited Company very attractive for many prospective business owners.
How to set up as a Limited Company
You probably will not be surprised to know that the first thing you need is a company name. Traditionally, this would be something that explains what you do. However, many modern businesses have decided not to – instead choosing names that are more eye catching and easy to remember. This can obviously work for large businesses, but many small businesses still tend to choose a name that in some way explains the service/products they provide. Whatever you decide to name your business, make sure you are happy with it, as changing it in the future could be expensive and ultimately have a detrimental effect on your business. You will also be required to provide a trading address. This can be your personal address or that of a separate property where you intend to operate.
One of the next things you will have to do is hold an official board meeting in order to incorporate the company. During this meeting you will also need to decide who the ‘Person with Significant Control’ of the business will be.
Documents required to be a Limited Company
When setting up as a Limited Company, you will be required to submit three main documents. The first is a company registration form, officially known as a IN01 Form. You will also be required to provide a ‘Memorandum of Association’. This is a formal document that clearly shows the intention of every named shareholder to possess at least one company share. Finally, you will also need to submit an ‘Articles of Association’ which clearly spells out how you intend to manage your company moving forward – including details of board members and specific roles and duties. Upon successful completion of the process, you will be issued an official ‘Certificate of Incorporation’.
Things to consider as a Limited Company
To ensure you give your Limited Company as great a chance as possible to succeed, there are a few simple things you can do. For example, it is important that you keep a detailed record of your invoices and that these are carefully checked to make sure they are correct – so as to avoid any unnecessary stress and work later on. It is also important to make sure payments are received and made in a timely manner. You should, therefore, come up with a clear plan as to what you will do should a client be unable or unwilling to pay what they owe you.
Such financial planning is important for all aspects of your business. It is recommended that you try to ensure you have a financial cushion in order to protect you should business become slow or you find yourself unable to work for an extended period of time. By planning for unexpected events, including scenarios such as sickness and the sudden cancellation of orders, you will be giving your business a much better chance of overcoming any such hurdles and thereby becoming much more sustainable.
Your obligations as a Limited Company
As a Limited Company, there are certain obligations you will have to meet. Firstly, you will need to ensure that you provide a pension for yourself and your employees – if you have any. Pension contributions are a tax-efficient method of using your company money, with various options available to you, including an automatic-enrollment pension scheme. Other financial obligations include VAT, Corporation Tax and payroll taxes – all of which you are advised to set aside money for in order to avoid any nasty surprises.
Insurance is another area that is important, and there are various policies you will have to look at depending on your specific situation. For example, if you have employees, you will be required to have Employee Liability Insurance. Furthermore, depending on what type of business you are operating, you may need to have Public Liability Insurance, as well as other policies, such as Life Insurance and Income Protection Insurance.
