A limited company in the UK is a legal entity that is governed by the Companies Act. Setting up a limited company typically involves registering that company at Companies House. Limited companies are unlike sole traders in that they act as a completely separate entity from the owners.
Limited companies are operated by shareholders or owners and a director. The director may be one of the shareholders or a separate person altogether. The company director is responsible for acting in the best interests of the shareholders. In order to operate as a limited company, you do not need an entire board room full of shareholders and directors. You simply need one owner or shareholder and one director and these can be the same person. The director runs the business and a secretary, if one is available, ensures that all procedures are properly carried out with regards to laws and regulations. Setting up a limited company can be done with Companies House or with limited company formation agents.
There are fees associated with setting up a limited company. Those fees can range between £17 and £100. Extra costs may also be incurred for things like visiting tax accountants or business consultants. All fees are required to be paid prior to operating the business as a limited company. Once the fees are paid in full, the company can begin trading.
Operating costs for limited companies run about the same as any other type of business, with a few exceptions depending on the specific type of business in question. Operating costs may include wages for the director or owner as well as any employees that are hired on. Accountants may also cost the company and there is an annual statutory fee that must be paid every year to keep the company registered with Companies House. Those not paying this fee on time may incur additional fees and late penalties.
While it is not legally required that you have an accountant, it is recommended, particularly if you are unfamiliar with running a limited company. Accountants will help to ensure that all of your finances are squared and that all fees are paid on time. They can help you to lower your tax responsibility as well and help with things like payroll and other items that are involved in the financial aspect of running a limited company.
One of the main advantages to choosing to register a business as a limited company is that the owner or shareholders are not responsible for debts should that business fail. Many sole traders lose their homes, vehicles and life savings because they are not protected from debts associated with their business. Limited company owners are protected from losing any personal assets due to business financial issues.
There are certain advantages to operating as a limited company, such as the ability to give shares of the business to family and friends. It can also make it much easier to obtain financing for certain business expenses if the business is registered as a limited company. There are other advantages, as well as disadvantages, that should be understood before determining if running a limited company is the best choice for your specific business.