If you’re thinking of starting up a business you might want to think about forming a limited company. But do you really need to form a limited company? And how do you actually go about forming a company? Here’s a quick guide to limited company formation.
First of all, why form a limited company?
The main reason is that it gives you, as owner, limited liability for any debts – hence the name. A company is a legal person in its own right, quite separate from the owners or directors. So, in the event of any loss or bankruptcy of the company the shareholders are only liable for a limited amount of any debts (normally a token £100) in most circumstances.
There can also be tax benefits to running your business through a limited company, as limited companies pay corporation tax on their profits rather than personal income tax.
Some people also think that having a limited company makes your business look more professional.
What about the drawbacks of forming a limited company?
Here are a couple of points to bear in mind. You’ll normally need to draw up accounts and file a return with Companies House (which maintains the official Register of Companies) every year. Apart from the extra cost and red tape it means anybody who wants to will be able to find out financial and ownership information about your business.
Three Ways To Form A Limited Company
If you’ve decided to form a company there are three main methods to try:
* You can do it yourself. Go to the Companies House website at www.companieshouse.gov.uk. It currently costs £18 and you can do all the paperwork online.
Do it yourself company formation could be suitable if your company type, organisation and nature of business are fairly straightforward.
* You can have your solicitor or accountant form the company for you. This is likely to be the most expensive option. But it could be a good idea if the organisation of your company or the nature of its business is complicated or unusual in some way.
* You can pay a company formation service to do all the paperwork for you.
Essentials For Forming A Limited Company:
Before you form a limited company you will need: At least one person to nominate as a director and a shareholder. A name – this must not be the same as a name already being used by a limited company and must be approved by Companies House (you can check for available names on their website). An address to use as a registered office – solicitors, accountants or company formation agents may allow you to use their address, if you’d rather not use your own. Details of each shareholder and the value of the shares they’re going to be holding.
If you’re unsure about anything when forming a company it’s best to take expert advice.
More Information. Here’s a handy article which explains how other kinds of business format you might want to use work, including sole trader business and partnerships.