Surrey based accountants, Linda Baharier can help you when you start up a new company. Whether you should opt for a limited company or not, and how to go through the procedures if you do.
Many people, when starting a new business, wouldn't even consider forming a limited company. Sometimes there are advantages of incorporation which make it worthwhile, but then the disadvantages can outweigh these and make it a futile exercise.
A limited company typically means limited liability. A director or shareholder has no personal financial risk should anything happen to the company. Obviously there are exceptions to this, such as if the directors have had to provide personal guarantees to a bank to secure finance. But typically the directors and shareholders (often the same people) are protected from any other creditors should the company get into trouble.
A limited company is an entity in and of itself. This gives it legal continuity meaning that the company itself can own property, and act in a legal capacity. This also simplifies the transfer of ownership or part ownership of the business. A limited company typically can secure greater finance than sole traders or partnerships, both through banks and sale of stock. The laws that apply to limited companies are far more clear than they are for individuals.
However, there are potential disadvantages of incorporation which can more than balance out any benefit. A limited company will incur administrative and legal expenses during incorporation and simply day-to-day running. This includes keeping interested parties informed of any changes in the company's details, in ensuring that the company details are included in all business communications.
As well as dealing with the tax returns, annual accounts have to comply with the detailed requirements dictated in the 2006 Companies Act. These include having the company's accounts being correctly filed with the Registrar of Companies. As well as the company being taxed on its profits it must also file a corporation tax return.
Withdrawing or introducing funds into the company can cause tax implications which will need to be carefully planned to avoid financial problems. This includes money money paid to directors and all sorts of NIC issues. The clearly defined rules for companies which protect the individuals concerned also lead to less flexibility, especially when dealing with trading losses.
Most seriously, a director of a limited company may be protected from liability, but they are at more risk of being drawn into criminal or civil penalty proceedings. This is especially the case for filing accounts incorrectly or late.
When you set up a limited company it is usually best to use a specialist formation agent, it can be quite daunting to have to do everything yourself.
The first decision is whether your new company is limited by shares or by guarantee. You also need to specify the purpose and capital requirements of the company. There is also the decision of the proposed company name, whether it is available and is acceptable.
Aside from that you will also have to deal with the incorporation procedures. These are legal requirements such as statement of first directors, secretary, and registered office the memorandum and articles of association. These are details which can be completed almost instantly online, but there are many different problems which you can encounter. The complexities of these procedures make it advisable to come to experts who can deal with it for you.