What is a Limited Company?
A limited company is a type of legal structure for your business. There is no legal distinction between a sole trader and their business, but a limited company has a separate legal identity to its directors and shareholders.
The Benefits of setting up a limited company
- separate legal identity – this means the company is liable when things go wrong, not you personally. You will only lose what you put into the business
- more professional – some businesses might be seen as more professional by others in their industry when they operate as a limited company – it can make it easier to secure suppliers, investment, and eventually sell the business
- tax efficiency – you pay Corporation Tax through your business, and you pay yourself in salary and dividends. This may turn out to be more tax-efficient than setting up as a sole trader. Getting early advice is important to understand if this applies to you.
The costs of setting up a limited company
- time – compared to sole traders, there are more legal responsibilities and administration to keep up with.
- money – As there are more accounting requirements for limited companies to follow it means that typically accountancy fees are higher.
- transparency – information about your limited company, including its directors and shareholders, is publicly available online through Companies House. There is a limited amount of financial information submitted by small companies which would also be publicly available. Again, speak to us if you have any concerns about the type of information that is available.
Check is it for you?
Make sure that setting up a limited company is right for you. Consider the type of business you are setting up – and the risks involved. If you are unsure, then get some professional advice at this stage.
Choose a name for your limited company
No two limited companies are allowed to share the same name, your name must be original for your business. It's also important to check whether your business name is available to use online. You can do this using a domain checker.
How many directors and shareholders?
Every limited company needs at least one director (someone legally responsible for running the company), but they can have more. For more information about what makes a good director, have a look here.
A limited company needs at least one shareholder. Shareholders can also be directors. As a small business this might mean you only have one shareholder – yourself. And if your business only has one shareholder, that shareholder owns 100 per cent of the company.
Prepare a memorandum and articles of association
These are the documents that say how you are going to run your limited company. You can use model articles as a template, create your own or we can put these together for you
Finally – incorporate
This is just a quick overview of setting up a limited company. If you would like to discuss setting up a limited company then please contact us, we would be happy to help.