Company Set Up

Setting Up a Private Limited Company (Ltd)

A private limited company (Ltd) is a corporation whose financial obligation is limited by shares, which is the most common form of privately held company. WE CAN SET UP YOUR LTD COMPANY IN 1 HOUR.

• The limited company business structure is different from the sole trader structure in a way that your company and personal finances are kept separate.
• Limited companies are supposed to pay corporation tax on their profits, whereas sole traders are taxed under the self-assessment system.
• If a limited company is going to achieve a turnover of £85,000 or more per year, it must register for VAT (Value Added Tax).
• Limited company directors have to face more legal, financial and administrative responsibilities, compared to sole traders.
• A limited company is owned by its shareholders.
• Its directors and shareholders have 'limited liability' i.e. their personal assets cannot be touched. For sole traders, their personal liability is unlimited.
• A Private Limited Company cannot offer shares for sale on the stock market, whereas a Public Limited Company can.

Setting Up a Public Limited Company (PLC)

• A public limited company (PLC) is the type of company which allows the offer of its shares to the general public. As with any other designation, a PLC has certain requirements. It requires a trading certificate, a minimum of £50,000 worth of share capital, with a quarter of that paid. Two directors, one of which may be the company secretary and two shareholders are also among the minimum requirements for forming a PLC.

Another common designation is known as a private company limited by shares, also referred to "Limited" or "Ltd". The shareholders of this type have limited liability. However, the shares of a Limited company may not be offered to the public.

• Limited liability partnerships, or LLPs, are corporate bodies whose legal existence generally does not depend on its members. The members of an LLP share a collective or joint responsibility. They usually agree to an LLP agreement, but each partner is not liable to the other partner's debts or obligations as they would be in a general partnership. An LLP has many features in common with a normal partnership - but it also offers reduced personal responsibility for business debts.
• Unlike members of ordinary partnerships, the LLP itself is responsible for any debts that it runs up, not the individual partners.

Setting Up a Partnership

If two or more people go into a business together without setting up a limited company , a partnership is a simple and easy way to get started. This is similar in many ways to going the sole trader route for an individual.
A partnership has no legal participation in the business, as a Limited Company would; it is like a vehicle linking two or more self-employed people in a simple business structure.
Basically, each of the partner’s business income is counted alongside their existing personal income, so the accounting side of the business will be pretty straightforward. As the name suggests, limited partner has no management authority in the business' day-to-day operations and his or her liability is limited to the amount of investment.

In terms of accounting, you will need to submit an annual self-assessment form to HMRC and keep accurate and up-to-date records of all business transactions (receipts and expenses) and accounts. Each partner will also have to submit an annual self-assessment form regarding the partnership. The partners will also be required to pay income tax on all profits and pay national insurance contributions on those profits.

It is important to remember that if either of the partners withdraws from the business (e.g. in case of death, resign or they go bankrupt), the partnership must be dissolved instantly, since it has no legal status.

Setting Up as a Sole Trader

Being a sole trader is the simplest way to get started in business. A sole trader is a business that is owned by one person. It may have one or more employees. A sole trader informs the government agencies about the nature of his business, and can start trading right away (subject to any specific licenses required in that particular line of work).
As a sole trader, you can quickly make changes in your business with minimal bureaucratic formalities required and you have complete control over your business and accounting affairs. However, a sole trader is liable for any debts that the business incurs. It is worth spending time considering which company set-up format is best for you.

A sole trader business is easy to set up. There are no formal procedures required and operations can commence immediately. It also does not involve dealing with any administrative or accounting firms which are required of limited companies.
If you start working for yourself, you are required to register with HMRC as self-employed, even if you already send in a tax return. There are some exceptions and special rules for particular industries, like the construction industry.
You should register the moment you start working as a sole trader, otherwise you could incur a financial penalty.

Tax & National Insurance

Essentially, your business income along with your existing personal income is counted, so the accounting side of your business becomes very straightforward. As the name suggests, you will be personally liable for any debts you incur in the running of your business which you wouldn’t be under the limited company route.

In terms of accounting, you will be required to submit an annual self-assessment form to HMRC and keep accurate and up-to-date records of all business transactions and accounts. You will also have to pay income tax on all profits and pay national insurance contributions on those profits. Losses can be offset against tax on other income.

In the April after your business starts, you will be asked by HMRC to fill in a self-assessment tax return. HMRC will also use the return to assess any profit-related (Class 4) NI contributions you may need to pay.

People who are self-employed are also liable for Class 2 NI contributions (currently £2.60 per week).

If your income from self-employment is low, you may be able to apply for the Small Earnings Exception.

Value Added Tax (VAT)

VAT registration is done separately and it is not a part of ‘self employed' registration when setting up. There are certain limits of your 12 months turnover after which you are registered for VAT. This limit - the VAT threshold - is currently £77,000.

The standard rate of VAT is 20%.

Your annual turnover is normally the total amount of money coming into your business from the goods or services you sell.

Insurance and Banking

Once you decide to become a sole trader and inform the authorities, you should select the appropriate business insurance cover for your new venture. You may need to take out public liability insurance and employers liability cover as well as insurances specific to your trade or industry.

You will probably want to open a business bank account as well. As a sole trader, you can open an account such as "John Smith Trading as BLT Construction", which will enable you to keep a separate account to your personal one and it depends on your own choice.

Other Considerations

Being a sole trader will suit a large number of small business groups, however it is not always the best route available. That is why we recommend discussing your choices with an accountant or other adviser.

The limited company route limits the personal liability of its directors if something goes wrong, whereas the sole trader is ultimately personally liable for any losses the business makes, of if they are forced into bankruptcy. Also, in some areas of business, having a limited company will enhance prestige and provide a more professional appearance in certain industries. Of course, you can always start out as a sole trader and then incorporate at a later date. A professional adviser (such as an accountant) can help with this transition.