One of the first questions any potential business start up should ask themselves is:-
"Do we need a limited company or should we become a sole trader?"
And the best person to answer the question is your accountant. But to help you with a little background information we have put together some of the basic facts.
What is a limited company?
For most people a standard limited company is adequate
There are more unusual company types, such as non-profit making, limited partnerships and charities. You really should take advice from an accountant before registering one of these kinds of company as special circumstances can and do apply.
If your business is built around a limited company it means that your liability is limited, if the worst should happen and the business fails, in which case your personal assets such as your home etc are protected from your company's debtors.
It also means that the company can have debts and as such are often seen by other companies as a more reliable and secure option than sole traders.
All limited companies are registered through Companies House and are required to submit certified accounts every year. This enables creditors and customers to check on your business and how it is performing albeit the records can be up to 18 months out of date, so they should not be relied on totally as a basis for trading.
Being a limited company also protects your company name so that no other company can use it.
Choosing a company name
There is an online search facility at Companies House web site which is very useful
Your company must have a minimum of 1 director.
There is no longer a legal requirement to appoint a company secretary, however companies with only one director will often require a second signature on legal documentation (for example when you open a bank account). If you do not appoint a company secretary this documentation will need to be signed by an appointed witness and many companies are still opting to appoint a company secretary.
Your company will require a registered office. This is an address to which all official mail can be sent to your company. If you wish to keep your address private / require anonymity, or you are not allowed to use your address your accountant will often offer this facility or know of a facility which can be made available to you.
There are millions of sole traders in the UK, for many this is the most economical way to run a business. You don’t have to lodge accounts with Companies house for instance which may save on your accountants bills, but you will still have to lodge your accounts with Revenue and Customs for tax purposes.
The major difference from a limited company is that you as the sole trader are responsible for the business and its debts, so if it goes wrong all your personal assets can be drawn into the equation and become available to your creditors. Sole trading can be a good option if you have very few debtors, creditors and assets, but if there is any likelihood of the business failing and you owing a lot of money or having long premises leases, this may not be the best course for you to take.
As always consult an accountant before making a decision on the best type of business formation for you.
If you want to protect from someone registering a Ltd company in your chosen company name in case you need it in the future and to save confusing your customers it may well be worth registering a limited company in your chosen name and then class it as non trading.
Maintaining a non trading limited company is very easy and straightforward, and well worth considering for any sole trader. You will have to submit your limited company accounts and annual return to Companies House each year but an accountant will do this for you at a minimal cost.
Always take advice from a good accountant regarding your specific circumstances if you are unsure.
If you are in business with someone else then you might want to consider a Limited partnership.
This type of company formation is very similar to limited companies in that they both offer a limited liability to their company’s members. However, there are two very important differences:
• a limited liability partnership (LLP) is taxed as a partnership and can be organised with more flexibility
• LLPs don’t have directors or shareholders, but can have as many members as you choose. Members should be formally appointed at the point of formation, or by the other members at a later date
LLPs are designed for the types of profession that have traditionally insisted on a partnership format such as lawyers and doctors. For most normal trading businesses, a standard limited company is usually preferable.