What Does Being a LTD Company Mean?
Forming a limited company is easy enough: it can actually be done in less than five minutes. What takes much more time, though, is thinking through whether becoming a limited company is right for your business.
In this guide, you will discover how to form a limited company, explore the differences between this company structure and others, and assess its relative advantages.
What is a limited company?
A limited company is an organisation that you set up to run your business.
You will no longer be wholly responsible for it and its finances will be separate to your personal finances. By the same token any profit it makes will be owned by the company, after it has paid its Corporation Tax. This profit can be shared amongst its members – the people and organisations who own shares in it.
Most companies are ‘limited by shares’. This means that each shareholder’s responsibility for financial liability is limited by the value of the shares that they own but have not paid for. Company directors of such companies are not responsible for business debts.
How do limited companies differ from sole traders?
A limited company is a legal entity, so as a shareholder your own liability is limited.
The main way that it differs from sole trader status is in the way that its tax and legal liabilities become separated from your own.
There is little legal distinction between you and your sole trader business. Any business debts will become your debts and, similarly, your personal assets – including your house – are not protected.
Forming a limited company
To set up a limited company you need to:
- Register it with Companies House.
- Inform HMRC when the company commences its business activities.
Tax responsibilities of limited companies and their directors
Your company must register for VAT if your takings are more than £83,000 a year. It must also:
- Maintain annual statutory accounts.
- Send Companies House an annual return (now known as a confirmation statement).
- Provide HMRC with an annual Company Tax Return.
Directors of a limited company need to:
- Complete an annual Self-Assessment tax return.
- Pay tax and National Insurance through the PAYE system (if the company is paying them a salary).
What are the advantages of a limited company?
- Protect your personal assets – Your personal assets are not at risk should your business fail.
- Claim on more expenses – You can claim on anything that is solely classed as a business cost, including accountancy fees, equipment, software, phones, travel, entertainment and much more.
- Take control of your business – You have complete control of your financial affairs without having to risk them being tied up in a third party administrator or umbrella company.
- Gain credibility – Most suppliers and customers have greater confidence in limited companies than other company structures.
To learn more about whether your business would be better off as a LTD company, contact us using our simple-to-use form. We have a great, experienced team of well-qualified partners who can advise you!
This article is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions. Investments can go down as well as up and you may get back less than you invested.