When you are looking to set up your very own business, there are many decisions to be made. One of the first choices – and, indeed, one of the most important – is whether or not to register your enterprise as a limited company.

Choosing to register your business as a limited company means that it will become a separate entity in the eyes of the law. This distinction means that the business will be held liable in the event of any financial or legal problems, rather than the owner. 

A limited company is suitable for any size of business, from those owned and operated by a single person through to the largest operations. The benefits for even the smallest of companies mean that registering as a limited business can make more sense than registering as a sole trader. This is because of the legal and financial protection that becoming a limited company offers. 

If anything were to happen to your business, its separate status in law means that the owner’s personal finances would not be at risk, nor would they be held personally liable for any debts, in sharp contrast with remaining a sole trader operation. 

The Pros Of Forming A Limited Company

There are many advantages to becoming a limited company. As I have already mentioned, the separation of the company from the owner or owners offers valuable protection in the event that any financial or legal difficulties should arise. 

Furthermore, by registering your business as a limited company, you may display the “Ltd.” abbreviation after your enterprise’s name. This offers significant benefits to fledgling businesses in particular, as it immediately shows your prospective customers and clients that you are a professional operation. This helps to build trust in your brand, and encourages people to buy from or work with you. It can even help your business to gain financial support as it demonstrates to lenders and investors that you are a committed business owner. 

By registering your business’s name as a limited company, you are also protecting your brand from being copied by a competitor. All limited companies are required to have a unique name, with even names that are similar to already registered names being forbidden, so registering is an excellent means of ensuring that your brand stays clear and individual. 

Another excellent reason for the smallest owner-operated businesses to opt for limited status is the lower rate of tax. As a limited company, you will be charged the corporation tax rate which is set at 19%, in comparison to sole traders, who are subject to paying income tax at the personal tax rate on the entirety of their profits, which can range from 20% through to the highest tax personal rates. The regular tax rate for limited companies also provides for better planning and may offer advantages in terms of reinvestment of profits. 

Furthermore, if you choose to draw your income as a combination of salary and dividends, limited company directors may be able to mitigate some of the personal income tax and National Insurance contributions they pay.

The Cons of Going Limited 

It is fairly hard to think of very many downsides to registering your business as a limited company. Many of the commonly perceived drawbacks to doing so are actually not the great hurdles that might be imagined. For example, some people are put off by the thought that it is a lengthy and costly process, yet in fact, the registration process is inexpensive, and does not take very long to complete. True, it is somewhat easier to register as a sole trader, but in the long run, the protections offered by going limited can make up for a little inconvenience at the start. 

You must keep registers and records at your registered office, where they must be available for public inspection, and you should be aware that your personal and corporate information will be a matter of public record at Companies House. Becoming a limited company means that you will be required to keep scrupulous records and you will need to send several documents to Companies House each year. These documents include a Confirmation Statement and annual accounts, in addition to your company tax return and annual accounts which must be sent annually to HMRC. Many directors opt to use professional accountancy services to help with these requirements, but this is of course an additional expense for your business. 

There are also some restrictions as to who is permitted to set up a limited company which could preclude some business owners from benefiting from it. A director must be over the age of 16, whilst you may not register a limited company if you are an undischarged bankrupt, or if you have been previously disqualified as a director. 

How To Register As A Limited Company

Once you have decided on a name for your company (and checked that it is unique), the next step is to name the directors and shareholders. A director may also be a shareholder, with the minimum number required of each is one, and there is no upper limit. You will need to provide the details of your directors and shareholders when you register your company, along with a registered business address. 

You will need to draw up documents that set out that you and any relevant parties agree to form a company, and set out how the company will be run, known respectively as the memorandum of association and the articles of association. These need to be signed and kept, along with all other company records. A good formation service can provide templates. 

Finally, give all of the relevant details to Companies House along with a statement of capital, which lays out the share structure for the company. This may be managed online, and there are also many companies who can guide you through the process for a low fee.