Becoming a Limited Company – What you need to know
Whether you’re a new business or have already been operating as a sole trader or partnership for a while, there may come a time when you want to set up a limited company. There can be several motivators for this, but the primary one is the legal and financial protection that limited company status brings: it separates your business assets and liabilities from your personal ones so that you don’t, for example, put your home at risk if your business runs into difficulties. However, with the additional prestige and protection that a limited company provides come a number of additional responsibilities. Here’s what you need to know.
Your business will need a unique name and a registered address in order to be registered with Companies House. You must also have at least one director and, if your company is limited by shares as most are, at least one shareholder, who may also be a director. You must also comply with HMRC’s requirements for a ‘statement of capital’ and memorandum and articles of association, documents which set out how the shares will be distributed and how the company will be run. You’ll then receive a ‘Certificate of Incorporation’ and you must register for Corporation Tax within three months.
Do we need a company secretary?
Since 2008 it is no longer mandatory to appoint a company secretary for a private limited company, though many businesses still choose to do so. The company secretary can also be a director, but they can’t be the company’s auditor or an undischarged bankrupt. They can even be someone external to the business, such as a company like BH Company Secretaries. Such firms are often appointed by company directors for their experience in running limited companies; they can provide support to the board and oversee compliance matters, though it should be noted that the directors retain overall legal responsibility.
Limited companies are obliged to prepare annual accounts at the end of their financial year. These are known as ‘statutory accounts’. Copies must be sent to all shareholders, HMRC and Companies House. As the requirements for completing accounts are more stringent than those for sole traders and partnerships, it is often preferable to hire an accountant to do this for you. This way you can ensure that all of the necessary paperwork is completed correctly and in a timely manner. If you don’t keep proper accounting records you could face a substantial fine from HMRC and even risk being disqualified as a company director, so it can be well worth getting professional help. Your annual accounts are used to prepare your Company Tax Return which must also be competed annually. You may also need to register for VAT if your turnover is high enough, currently more than £81,000.
Don’t forget you can get free business advice from STANTA which will help you understand your options and obligations when setting up your limited company. Good luck with your venture!