Got a great business idea and now ready to crack on? Eggcellent, eggciting, eggcetera. Now you need to decide what legal structure to proceed with.
In this blog post we are going to look at two of the most popular structures that are available to you:
• Limited Company (in this case a Private Company Limited By Shares)
• Sole Trader
Private Company Limited by Shares
A limited company is run by directors and owned by shareholders (a company can be run with one person acting as the director and shareholder).
By setting up a limited company, you are separating your own finances from that of the company. In-turn, any profit made is owned by the company; this can then be distributed to you a number of ways.
Why you should set up a limited company:
• A limited company provides financial protection to its shareholders. If the company were to go bust, shareholders’ are only liable to pay for their unpaid shares. For example:
If I formed a company with 2 shares worth £1 each, both allocated to me and I’d paid for 1 share already, I would only be liable for another £1.
• Some people will only do business with you if you’re set up as a limited company.
• There are more rules and regulations associated with running a limited company in comparison to a sole trader. This includes:
– Filing Annual Returns (a snapshot of general company information) on an annual basis with Companies House
– Filing Annual Accounts (a document that details financial information) on an annual basis with Companies House
– Filing a Company Tax Return with HMRC
• Limited companies need to pay Corporation Tax on profits.
Setting up as a sole trader means that you are setting yourself up as a business. This does not mean that you must work alone; it just means that you are responsible for the business. All profits can be kept by you (once tax has been paid).
Why you should set up as a sole trader:
• The filing and tax obligations are minor when compared with those of a limited company.
• A sole trader does not offer limited liability (like a limited company); it gives unlimited liability. This means that if the business were to go bust, the individual involved is liable for any losses.
One area that we have not touched on in this post are the tax implications involved with running as a limited company and as a sole trader. For advice on this, we recommend speaking to an accountant.
Ultimately, different businesses will suit different business structures. Therefore it’s all about finding the right structure for you. We hope this post has been useful in helping you decide how your business will hatch.
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For the start-up onwards. We provide services that make business simple: Company Formations, Virtual Offices, Company Credit Reports & more.
— MadeSimpleGroup (@MadeSimpleGroup) August 14, 2013
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