“Should I form a Limited Company for my business?”
This has to be up there in the top 10 frequently asked questions so far as accountants are concerned. All sorts of rumours abound,some of the advice doled out in pubs is quite incredible and if true then surely we’d all be setting up companies and retiring to the Bahamas.
Unfortunately a Limited Company will not work such miracles but in the right circumstances it can be of benefit and can save you money. So if you are considering incorporating here are some points to think about:
- Limited liability – the company is a separate legal entity. It has officers (Directors) who look after its interests and owners (shareholders) who are ultimately entitled to the profits of the company. In the event that the company is wound up the liability of the shareholder’s is limited to the value of any unpaid share capital. For most business owners this is attractive because it means that their own personal assets are protected.
- Prestige – there can be a perception that a business is larger and more established if it is incorporated.
- Inexpensive to set-up – it won’t cost you much to form a Limited Company. Online formation agents such as www.companiesmadesimple.com will form a company for you from as little as £16.99 plus VAT.
- Transparency – some businesses prefer dealing with Limited Companies as details of the company and its annual accounts are on public record at Companies House.
- Tax Savings – there are a number of tax benefits associated with Limited Companies. These will vary a great deal from business to business depending on the individual circumstances. The best advice here is to speak to your accountant (not your mate at the pub) and get some hard facts and figures to base any decision on.
- Increased costs – The administration costs of running a limited company can be greater than that of a sole-trader. You will need an accountant to prepare annual accounts in statutory format for submission to Companies House. You will also have to prepare a company tax return as well as your own personal tax return.
- Increased administration – for the same reasons given in point 1.
- Not fool-proof – the limited liability (point 1 of “Pro’s”) is not a get-out-of-jail-free card. For example if the company takes a bank loan but the director provides a personal guarantee then his personal assets can be at risk or if the director is found to have traded (via the company) whilst knowingly insolvent he can again be attacked personally.
For more information about Limited Companies see http://www.westbury.co.uk/business/limited-companies or contact Westbury Accountants for a free, no-obligation initial meeting.
Nicola Pearson – Partner
Westbury Accountants and Business Advisors is an accountancy practice based in London. Westbury have been providing Accounting and Tax solutions to small and medium sized businesses since 1936. Talk to the team at Westbury on 0207 253 7272 or visit http://www.westbury.co.uk.