Setting up a Limited Company
The question is, why set up a limited company? Setting up a company can involve more administration and higher costs than if you were just a sole trader. The main benefit is as a limited company you are not personally liable for any debts if the company fails. As a sole trader you are personally liable for any debts and can potentially risk bankruptcy if the debt is large and you cannot afford to pay it. By setting up a limited company you can protect yourself against this.
A limited company is a separate legal entity and this means that it is responsible for its own actions. The finances of a limited company are completely separate from the finances of its owners. As long as you do not commit fraud or trade recklessly, as the director of a limited company the risk of loss is only the money you will have invested in the company. You are however liable for any bank loans you take out if you provide personal guarantees for your limited company. Being a limited company may also make you seem more credible to potential customers, partners or investors.
To set up a company you need to register (incorporate) with Companies House. You can do this online using the Business Link and Companies House Web Incorporation Service. An alternative to this is to pay a small fee and have an accountant, solicitor or agent do this on your behalf. All you need to provide is some basic information and a few signatures. There are ready made limited company names available to buy if you wish but if you want to form a brand new company you need to send a memorandum of association, articles of association and a completed IN01 form to Companies House. A memorandum of association lists the company name, registered office and the nature of the business. This must be signed by the director(s) and witnessed. The registered office will be the official limited company address and this is the address that Companies House will send any notices, letters and reminders to. The articles of association are the rules for running and regulating the company.
Many people do not have the time or experience to take care of all the administrative tasks associated with setting up and running a limited company. In these cases there are contractor accountants out there that will take care of everything for you. These companies can offer you a full package which will include the formation of your company, taking care of VAT and PAYE, Annual statutory accounts and filing of account and dealing with all correspondence from HMRC and Companies House. Make sure you shop around before employing one of these companies to make sure you are getting the best value and service for your money.
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