Registering Your Company
Every company no matter how big / small, must have a legal structure. You will need to either register a limited company or start operating as sole trader. There are multiple things to consider when starting your business entity, and both options have pros and cons which will differ depending on your circumstances.
Note, Before you make any decision, we recommend you speak to a professional financial adviser or accountant about your personal circumstances.
What is a Sole Trader?
A sole trader is a self employed person who is the sole owner of his business.
Being a sole trader means that you are the completely responsible for the company and its liabilities with no legal separation between yourself and the business. Any of your personal effects could be considered a part of business, and any of debts your business are personally yours.
You can still employ people as sole trader, but you are personally responsible for them as a liability to your business activities.
- Easy and inexpensive to start up.
- Online registration.
- A Few bookkeeping and accounting requirements.
- Self assessment once a year.
- All profit after tax belongs to you.
- No personal details are on public record.
- No legal distinction between the personal and business finances.
- Sole trader is personally liable for the all business debts.
- All taxable income is liable for the income tax and national insurance.
- Lenders prefer to deal with the limited companies so it can be harder to raise funds.
- ‘One man bands’ could be viewed as amateurish by a consumer.
- Limited companies are more tax efficient.
What is a Limited Company?
A limited company is the type of business that has been incorporated at Companies House, forming a separate legal entity to business owner(s). This ‘limited liability’ gives various advantages in the business, one of which being that if a limited company is taken to the court and a ruling is made against them, personal assets of its directors cannot be considered as a part of a claim.
This reduced the financial responsibility of limited liability can act as a safety net for business owners, however there are also disadvantages like increased accounting requirements. Limited companies have the shareholders or guarantors, with shareholders being most popular choice. You can therefore sell a portion of your company to raise the funds and give the investor a number of shares from which they will get dividends.
Companies have to pay the corporation tax on all profits made, but this is after all expenses such as the staff wages and running costs. A company is run by the one or more directors who take responsibility for accounting requirements set by Government Agency.
- Separate legal distinction to it’s owners / directors.
- Limited liability for the personal finances and assets of shareholders.
- Corporate credibility.
- Shares can be sold to raise the capital.
- Tax efficient ways of paying yourself via salary and dividends.
- Can exist even without the original owners, companies can grow for centuries.
- Must register for the tax.
- Set-up costs involved.
- Company names could be limited by what has already been registered.
- Accounting and filing requirements could be complicated so an accountant might be necessary.
- Directors and others involved with business will have their service address stored on public record.
- Must have a registered office in Region.
Edited: Sourced By @Howthorninc