Starting a business is not an easy task. From business ideas to incorporation, entrepreneurship is quite a journey. You have an excellent business plan and are confident that will bring in good profits. The first step is sorted. You have then started your quest for funding and investors. Luckily you have passed this step too. Then comes the most important and confusing step for many young entrepreneurs. Whether your company should be a sole trader, partnership, or limited liability company. Your company’s future will depend on the registration of your company. So it is important to choose the right one.
Each of these legal types has its benefits. But most people end up registering their company as sole traders. It can be both advantageous and disadvantageous. However, a sole trader is not as advantageous as a limited company. But before dwelling further into this discussion, it is important to understand what is limited liability company is.
What is a limited liability company?
There are two types of a limited companies- public and private. In this article, you will be knowing about the private limited. A limited liability company is a legal structure of an organization in which the financial liability of the owner is limited. Here the limited financial liability is usually the upto the investment they have made. Yes! In case of a corporate loss, the investors or owner’s assets will not be at risk since the owner and the business are considered separate entities. Limited liability can be considered as one of the major advantages of investing in publicly listed companies.
Why a limited liability company?
Limited liability companies are an excellent way to reduce financial liability whilst increasing credibility with the customers. Also, it is the most tax-efficient way to run a business. Another important advantage is that it opens many new contract opportunities that are not quite open for sole traders. In the case of limited liability companies, the directors are taxed as employees and also the company would pay taxes on their profits only. The tax rate is also low. Since the liability of a person is limited to the amount they invest, they will not be losing more than their face value in the company. This brings us to the doubt, can a person establish a limited liability company on their own? The answer to this question is, Yes! You can set up a limited liability company by becoming the only employee and the sole director. The only reason why most people fear to incorporate their company as a Limited liability company is because of the paperwork. If you are also worried about the LLC company formation. Worry not! By the end of this article, you will be having a step-by-step guide that will help you in setting up your LLC company.
How to set up an LLC?
Now, you will get all the information that is needed for you to step up an LLC.
Decide whether this is right for your business
One of the first and foremost things that you should be doing is to check whether the structure of your business is suitable for a Limited Liability Company. Don’t just go for it because it seems more advantageous compared to the sole trader. You must select the legal structure of your business based on the structure of your business. Before you make a decision it is important to check the pros and cons of opting for the limited liability company. If your pros are more than cons then just go for it. Also, divide whether your company is going to be a Private Limited company or a public limited company.
Now that you have decided that you are going for the Limited liability company then let’s jump to the second most important step of your business incorporation-name. Yes! It is time to choose a fitting name for your business. It is time to bring all your creativity to the table. The business name must be memorable and easy to remember. Dont just pick the first name that comes to your mind. Take your time, take the opinion of your family and friends. Just see that your business name fits your brand personality. No matter what your company name is at the end of it you must add “Ltd” or “Limited”.
Companies house or third party
Now that your business has a name. Let’s take about the next crucial decision that your business needs to make. Choose whether you would like to set up your company through companies house or a third party. These are the two options available. You can directly register through companies office. If you are sending your submission through mail they will charge you around £40 and £12 for online submissions. But you must remember that you will be doing all the work by yourself. However, if you opt to go through a third party then they will help you through the application process. Not only that, but they will also provide you with good accountancy advice too.
The admin process will reduce based on the choice you make. If you choose to go through the third party your admin tasks will completely be handled by them. However, if you are going through companies house then you will be needed to do things by yourself. So naturally, you will be handling more formation processes. When registering you must provide specific details about your business to the companies house. You will have to provide the Standard Industrial Classification Code that fits your business. Provide three addresses for your business i.e., business, registered office, and director service address. Also, provide them with details regarding the number of shareholders and their shares details. Lastly, provide other details such as Memorandum of Association, Articles of Association, Form12, Form10. If you want to finish the incorporation process you must submit these documents. Once you have submitted all the required details the companies house will take around 24 hours to process your application.
Responsibilities of a director
As your newly formed company is incorporated, you must know the responsibilities of a director. Some of your responsibilities will be submitting your confirmation statements and Annual accounts every year by the due date. You must maintain and submit the PSC register. One thing that you must remove is that HMRC must receive the accounts of your company every year. All the rules mentioned in the Articles of Association must be followed thoroughly. You must pay any corporation tax owned within nine months.
Your responsibilities do not end with you registering your company. You must also hire an accountant who will help you in managing your business. An accountant will keep your finances in order and makes sure that you never miss an important deadline. Delegating the administrative tasks to an accountant will save your time and also help you better in focusing on other aspects of your business that need your attention. As you have made it to the end of this article, you would have already understood how to set up your Limited Liability company. Registering as a Limited Liability Company is much more advantageous compared to the sole trader or partnership.