There are essentially three legal or accounting structures recognised for starting a business. You can go it alone by being a sole trader, team up to form a partnership or operate a limited company. Choosing the right one is important.
What is a limited company?
There are two types of limited company – those that are publicly traded on the stock market (known as a public limited company or plc) and those that are privately owned (identified by the abbreviation Ltd at the end of their name). It’s highly unlikely you’ll be starting life on the stock exchange so we’ll concentrate here on limited companies.
A limited or limited liability company is very different from a sole trader. If you’re a sole trader or partner, you can be held personally liable – outstanding debts can be met from your personal assets.
Registering and running a limited company requires more legal administration than a sole trader business or partnership. However, while the business owner is personally responsible for any debts incurred by a sole trader business, a limited company is a separate legal entity to the company directors. Profits and losses belong to the company, and the business can continue regardless of the death, resignation or bankruptcy of the shareholders or people who run the business.
Limited companies pay corporation tax on their profits and company directors are taxed as employees in the same way as any other people you employ to work for the company.
Your personal financial risk is restricted to how much you invested in the company and any guarantees you gave when raising finance for the business. However, if the company fails and you have not carried out your duties as a company director, you could be liable for debts as well as being disqualified from acting as a director in another company.
Steps to registering a limited company are as follows:
- Decide whether you can register the business yourself or if you need outside help. more…
- Decide on the company officers. more…
- Choose a name for the company. more…
- File the correct documents with Companies House. more…
- Start trading!
