There are several things to consider when establishing a limited company structure in the United Kingdom. In the UK, a lot of firms run as sole traders (not registered with UK Companies House), yet creating a limited company in the country has many benefits. These benefits include, among other things, tax advantages, limited liability, protected company names, and independent legal entities.
Main Benefits of Forming a Limited Company
The main benefits of forming a limited company in the UK will be examined in this blog.
What is a Limited Company?
One kind of business structure that has its own legal personality/identity and is incorporated with Companies House in the UK is the limited company. Because of this legal distinction, the corporation and its directors and shareholders are two different entities. If a person decides to operate the company as a limited company, it will:
- be legally separate from the person or people in charge of operating the business;
- Ensure that your personal and business finances are kept apart.
How to Register a Limited Company in the UK with Companies House
A person must register a limited company with Companies House in the UK to establish one. We refer to the registration process as incorporation. A person can register a limited business by mail or online. The procedures for establishing a limited company in the United Kingdom are as follows:
- Select your business name: Just like a website address, the name of your business must be entirely original. On behalf of the company, we at dns accountants can help with the registration and incorporation procedure.
- Registered Office Address: Choose where your company's registered office will be located. Companies House and other government agencies will send official communication to this address.
- Appoint Directors and Shareholders: To manage the business, you'll need a minimum of one director, who may also be a shareholder. Information about the shareholders, such as their names and addresses, must be disclosed.
- Memorandum and Articles of Association: Write the memorandum of association, which describes the company's constitution, and the articles of association, which detail how the business will be controlled.
- Company Formation Agent or DIY Registration: To help with the registration procedure, you can work with a business formation agent or register directly with Companies House. Go to the Companies House website if you're doing it yourself.
- Complete the Registration Form: Provide information about your firm, such as its name, registered office, directors, and shareholders, on the necessary application form.
- Pay the Registration Fee: The cost to register a corporation varies according to the method selected and the services needed. If registering by mail, payment can be made online or by mail.
- Submit Documents to Companies House: Submit documents to Companies House for processing after completing the application and paying the required amount. You can send an email or complete this online.
- Confirmation and Certificate: Companies House will provide a certificate of incorporation and a business registration number following a successful registration. This indicates the legal existence of your business.
- Additional Registrations and Compliance: After registration, you might need to register for taxes like Corporation Tax and VAT. You'll also have ongoing filing obligations such as annual accounts and confirmation statements.
Leading Limited Company Benefits
Tax Benefits
From the point of view of personal taxes, going through a limited corporation is more tax-efficient than going through a single trader. Usually, as a director of a limited business, your income consists of dividends (which are exempt from National Insurance contributions) and a tiny salary with minimal tax implications. Compared to ordinary personal tax rates, dividend tax rates are substantially lower.
Corporation tax will need to be paid by your business on its profits. Generally speaking, small businesses' corporation tax rates are less than most income tax rates. Take note that in 2023, certain enterprises will see an increase in their corporation tax rates. See more about how businesses will be impacted by the corporate tax increase in April 2023.
Additionally, limited businesses have the advantage of being able to deduct greater expenses from taxes than sole proprietors do. See our small company DNS Expense Guide for more information.
Limited Liability
A major advantage of starting your own limited company is that it offers limited liability protection and functions as a separate legal entity. If your business experiences financial difficulties, your assets are safe. This protection comes from a limited company's distinct legal personality, which releases you from personal responsibility in certain situations.
You will not be required to bear personal liability for any of the company's problems as a shareholder. The only amount you will have to pay if your business goes unpaid and cannot pay its creditors is the face value of your outstanding shares. Your personal belongings will be safeguarded beyond that.
Contrast with Sole Traders
In contrast, because they may be subject to limitless personal liability, sole traders bear a significantly larger risk. This implies that the person has personal responsibility for all obligations, liabilities, and debts of the business. For this reason, setting up a limited company is a much superior way to reduce personal liability and keep your business financial obligations apart.
Creating a Brand Name
Since limited companies must have distinctive identities, enterprises that have established at Companies House have protection against third parties using their trading name. Once registered, your name is legally protected in the UK and cannot be used for trading by anyone else.
Distinct Legal Entity
A limited corporation that has been registered will function as an independent legal entity that is unrelated to you. This means that everything owned by the company—including loans, credit agreements, assets, and its business bank account—is entirely distinct from the interests of the company's shareholders. Individuals benefit from claims made against the firm by its distinct legal character.
Easier Financial Access
You might want access to credit, financing, or business loans if you wish to expand your company or make major purchases like purchasing equipment and plants. You will have additional financing options as a limited company to raise money for the company both now and in the future. As a limited corporation, you can be eligible for more favorable interest rates and conditions for repayment.
Possibility of Respect and Credibility
No doubt using "limited" can elevate a company's professionalism. Customers might view it as more dependable, permanent, or credible, and it can give off a more finished impression.
Incorporating a firm as a limited company can lead to more commercial opportunities and build confidence. Gaining customers' confidence and trust in your company, goods, or services can be quite beneficial. If you are an individual, many huge corporations will not deal with you; but, if you operate a limited company, they will be pleased to collaborate with you.
Summary
In the UK, forming a limited company is not difficult; yet, some guidelines need to be followed. There are several benefits to running a limited business as opposed to being a sole trader. We suggest that you obtain professional assistance from accountants like DNS Accountants for limited company creation, company year-end accounts, self-assessment tax returns, tax planning, and other matters. There are various business structures you could think about, such as limited liability partnerships.
For help and advice on setting up a limited company in the UK, contact our team on 033 0179 7558, or email on info@citygatefinancial.co.uk.