A Plain English Guide To Running A UK Limited Company
INTRODUCTION
A limited company is a legal creation which is established in law and governed by the Companies Acts, passed by Parliament. Certain Government departments are responsible for ensuring that limited companies observe the law, for example Department of Trade and Industry and Companies House.
Limited companies are distinct and separate entities from the owners (shareholders) and the people who run it (directors). It has its own status for taxation, financial and general legal purposes. It is like being another person.
Below is a list of questions commonly asked by people thinking of "going limited" (known as incorporating ), and some basic answers.
If you are still in doubt whether to proceed after reading through them you should speak to somebody with the appropriate experience and knowledge to answer the queries specific to your circumstances, for example a Chartered Certified Accountant. We can recommend accountants who specialise in setting up limited companies if you wish.
- WHO OWNS THE COMPANY AND WHO RUNS IT?
- WHAT ARE THE SET-UP COSTS?
- HOW QUICKLY CAN I TRADE?
- WHAT ABOUT THE RUNNING COSTS?
- WILL I NEED AN ACCOUNTANT AND AN AUDIT?
- AM I LIABLE FOR THE COMPANY'S DEBTS?
- DO I HAVE TO TRADE IMMEDIATELY?
- ARE THERE COMPLIANCE COSTS?
- WHAT IS A REGISTERED OFFICE?
- APART FROM LIMITED LIABILITY WHAT OTHER ADVANTAGES ARE THERE?
- ARE THERE ANY DISADVANTAGES?
- HOW DO I PROCEED FROM HERE TO SET UP A LIMITED COMPANY?
- WHO OWNS THE COMPANY AND WHO RUNS IT?
The directors run the company and the shareholders (known in law as "members") own it. The directors may also be shareholders. You only require one shareholder and one director, who can be the same person. The position of company secretary became optional since April 2008, but the duties of the secretary must be performed by the director if there is no secretary.
The director is responsible for running the business, and the secretary must ensure that all the statutory procedures are carried out and complied with. This usually means dealing with minutes of meetings and filing forms at Companies House.
- WHAT ARE THE SET-UP COSTS?
The registration fee is £24 or less but since most people use a company formation agent the cost will typically be around £72, especially if the formation agent is experienced and able to handle technical queries that may arise.
- HOW QUICKLY CAN I TRADE?
An own-name company that is set up specifically at your request will take around a day or two to register.
- WHAT ABOUT THE RUNNING COSTS?
These are basically the same as any type of business. It may cost extra to arrange your own wages and prepare year end accounts, but many accountants will agree charges in advance to sort these matters out for you.
- WILL I NEED AN ACCOUNTANT AND AN AUDIT?
An accountant is not a legal requirement, although it is usually advisable to seek the
services of a suitable qualified accountant eg ACCA, as they will prevent you from making costly errors and almost certainly reduce your tax charge.
For companies with a turnover (sales) below £5.6 million per year or a balance sheet total of less than £2.8m , no form of audit or examination of year end books by an accountant is necessary by law, although it is advisable to consult an accountant.
- AM I LIABLE FOR THE COMPANY'S DEBTS?
No. Unless you sign a personal guarantee or trade fraudulently. A limited company is "limited" in the sense that its owners are not liable for its debts. Some people see a limited company as an insurance policy, especially for a new business or a high risk business. Many people lose their savings and other assets because they started up not "being limited". You need to assess the risk of your situation.
- DO I HAVE TO TRADE IMMEDIATELY?
No. Your company can remain dormant (non trading) for as long as you wish.
- ARE THERE COMPLIANCE COSTS?
The annual return (form 363) costs £18 if submitted electronically or £36 if submitted manually.
- WHAT IS A REGISTERED OFFICE?
This is an official address for the business, where legal documents can be served. It does not have to be the trading address, and it can be your home. If you prefer, you can pay Formations Direct to be your registered office.
- APART FROM LIMITED LIABILITY WHAT OTHER ADVANTAGES ARE THERE?
- You can give a share of the business to others eg family.
- It may be easier to attract people to invest money in your business.
- Obtaining bank loans may be easier.
- There is no higher rate tax band.
- In the event of a partner leaving or somebody dying it is easier to continue the business.
- It is easier to sell the business.
- You have better standing in the public eye.
- It can assist in the protection of a name.
- People have more confidence in your business as they can check public records at Companies House.
- Subcontractors and agency workers will find it easier to obtain work.
- ARE THERE ANY DISADVANTAGES?
The preparation of annual accounts may cost more.
The public can check up on certain aspects of your business.
- HOW DO I PROCEED FROM HERE TO SET UP A LIMITED COMPANY
Give us a ring or drop us a line. We use the easiest and simplest methods of incorporation at Formations Direct, from free name checks to after sales service.
Tel 0800 085 45 05 www.formationsdirect.com
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Please note that the information contained in this leaflet is for general guidance only and is in no way intended to be a substitute for professional advice. Statutory figures may be liable to change. Stanley Davis Group Limited t/a Formations Direct takes no responsibility for any actions or decisions resulting from reading this leaflet.