Work - Limited Company

What is a limited company and why would you want to form a one?

A limited company is when you have a company that affords you legal protection from being liable for company debts (ie Limited Liability' hence the name), which is one of the major drawbacks to being a sole trader.

However, if there is malpractice by directors and it is proved, then personal assets of the director(s) are at risk. Additionally, if you seek credit and there isn't enough in the business itself to make the banks happy, they are likely to only lend to you if they have personal guarantees against your property and possessions, which wipes out the limited liability advantage in a flash.
 
Another reason for choosing to become a limited company is the perception of stability and weight that comes with having limited after the company name, and this certainly still holds true, as I have found with Funky Angel, which has been limited now since June 2005.

Having 'Limited' after your company name can mean different things to different people, and some really enjoy saying that they are a company director, for example. Not my bag personally, but I found it still carries weight and standing.
 
Whether it is entirely worth it, given the amount of legislation and admin involved is probably entirely down to the quality of your accountant. I'm lucky enough to have an excellent one in the form of Andrew Wilson at Assets Accounting in Reading, who also acts as my company secretary, and he saves me far more money and hassle than he costs me.
 
In fact, a good accountant can take advantage of all the tax laws and guidelines to make sure every penny possible benefits the company rather than going to the tax man first before it reaches you, and this in itself can be a worth incorporating - see our article in Funky Finance on Tax Efficiency for more details.

All company profits - the bottom line figure on your profit and loss account - are taxed by a system known as Corporation Tax. For example, a yearly profit between £1 and £300,000 is subject to 20% corporation tax, which is lower than normal taxation rates. Once you are a limited company you have a legal responsibility to the government and any employees. Companies must comply with legislation covering income tax, corporation tax, national insurance, health & safety, administration and employment.

Although all directors have the responsibility and liability for their actions the 'Company Secretary' is the one that the law will look to if the trading accounts are not filed or are late at Companies House, amongst many other duties.

It is not expensive to form a limited company - currently £20 -  and you can do so online at Companies House very easily.
 
© Claire Burdett. No content to be reproduced without written approval of the author.

Claire Burdett is the Founder and Director of Funky Angel. She is a Writer, Journalist, and Editor, Integrated Marketing Expert, and Home Business Mentor.

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