Limited Companies
   
 







Do I Need to Set Up a Limited Company?
The simple answer to that question is that in the UK you do not need to set up a limited company when you start your business.
 
Limited Liability
 
Having said that, many people do set up a limited company so that their personal assets are separate from the assets of the company.  If your company fails, then the creditors would not usually get access to your personal assets.  Losing a business and all of the assets in it would be bad enough but to lose personal assets such as your house as well would be worse.
 
Exceptions
 
Now there are some cases where your personal assets would not be protected by setting up a limited company.  The most common is where you have given a personal guarantee or security.  Tread carefully if anyone (especially anyone lending money to your company) asks you to sign anything in your personal capacity rather than in your capacity as a Director of your company.  The best idea is to seek legal advice before signing.
 
Another important area on which you need advice is the responsibilities of company directors.  Not the most riveting topic in the World but it is critical that you take your responsibilities seriously.  For more information on companies and directors responsibilities go to the Institute of Directors website and look at their fact sheets. 
 

How To Set Up A Company

So how do you set up a company. Well like lots of things, it is easier now that you can do it online. Duport Associates Limited will do the job for you. Key decisions you will need to make include:

  • Your company name – you can check that the name is available by clicking here and putting your proposed name into the top right hand corner of the screen.
  • Who will be the company directors (at least one is needed)
  • Who will be company secretary (one needed who must not the be same person as a sole director)
  • Paid up share capital – can be as little as a £1 but there may be advantages to increasing this amount later
  • Registered office – often this will be your home address for a start up company but it can be elsewhere. If you use an address owned by someone else, do check with them first.

Then it is time for your credit card and your company could be registered in a matter of hours depending on when you go on line. Click here to get started.

To get more of your questions about companies answered take a look at Roger Mason's 501 Questions & Answers for Company Directors and Company Secretaries.
 
Of course, there are other options to starting a limited company.  A summary of the pros and cons is set out below.  This is just a summary, so if you are unsure about what is best for you, then it is sensible to seek advice from an accountant.  You should also make sure that you understand your tax liabilities.

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Pros and Cons of Being a Sole Trader
 
Advantages
 
  • To set yourself up as a sole trader is very straightforward.  You do not need to register with Companies House.
  • All of the profits of the business are yours – you do not need to concern yourself with shares or dividends
  • The tax position is relatively straightforward – you are taxed on income less your allowable expenses.  You may be able to offset any loses from your business against other income which you have.
 

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Disadvantages
 
  • As a sole trader you are personally liable for all of the debts of your business.  If your business goes very badly your assets, including your house, could be sold to pay off your creditors. 
  • It may be harder to secure business loans if you are operating as a sole trader.
  • As your business grows, there may be some tax benefits in operating as a limited company.
  • It may be easier to sell your business if you are running it through a limited company rather than as a sole trader.

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Pros and Cons of a Partnership
 
Advantages
 
  • Working with a partner can make it much easier to get your business off the ground because there are two or more of you working on the project. 
  • As a business owner, you will probably feel it is important to keep an eye on the business as all times.  With a partner, you can share the responsibility.  This would allow you, for example, to take a break whilst knowing that an owner is still back home looking after the business.
  • Partnerships, like sole traders, do not need to register the business at Companies House.

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Disadvantages
 
  • The business is shared between the partners and sometimes decisions can be delayed because partners cannot agree on the best way forward.
  • If you enter into a partnership with a friend or a member of your family, business issues can easily destroy the relationship which you had.
  • A contract entered into by any partner binds the partnership.  So if your partner enters into a contract you are bound by it even if you did not agree with the decision to sign up.  All of the partners are liable for the debts of the partnership.  As a result it is essential that you have a partner or partners who you can trust.
  • Entering into a partnership agreement is highly recommended and often the partners will seek legal advice before signing a partnership agreement.