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By miguel-ingles
- In Uncategorized
Entrepreneurs that form corporations in the UK prefer a limited company or LTD business structure over limited liability partnerships, public limited companies or sole traders, among others. In this article, I will explain the benefits of setting up an LTD in the UK.
What is an LTD?
A limited company is a kind of commercial company that is a separate entity from its owners. That means that they have their own legal personality, and they are independent of their owners (shareholders). In consequence, assets, debts and profits will be property of the company, not of their owners. They will have their own rights and obligations.
To set up a limited company, first you will have to appoint a business’ director or legal representant and their shareholders. Then, you must write the Memorandum of Association and the Articles of Association. These must reflect the company’s name and headquarters, the object of the company and rules about distribution of dividends, among other things. To conclude, you must register the corporation in His Majesty’s Custom and Revenues (HMRC) to pay taxes and in the Companies House.
Limited companies are a popular option among small business, due to offering some benefits that will be listed in the following lines.
Benefits in Matter of Liability when Setting Up an LTD in the UK
One of the main reasons most entrepreneurs form limited companies is due to the responsibility remaining limited to the money you have invested into the business. Therefore, if the corporation gets into debts, each person will economically contribute depending on the number of shares and their value. This differs from companies with sole trader or partnership business structures. In these, each member will have full responsibility. This means that they must cover business’ debts with their personal assets until these get cleared.
Benefits in Matter of Attracting Investors when Setting Up an LTD in the UK
On one hand, investors see this kind of businesses more trustworthy than those with a sole trader legal structure. In fact, some corporations will refuse to work with not incorporated businesses, so limited companies will have a larger number of investments and loan offers from banks or crowdfunding bids.
On the other, these corporations can attract funding in return for shares. Investors may be shareholders from inside the business or people outside of it. That being said, public sale of shares is forbidden.
Benefits Paying Taxes when Setting Up an LTD in the UK
An LTD must pay VAT if its annual income is superior to 90 000 GBP, and Corporation Tax. Sole traders, however, must pay Income Tax and National Insurance fees. And, for small businesses, taxes to defray of a limited company are lower than a sole trader’s.
It is true that directors must also pay Income Tax and National Insurance fees. Nonetheless, they will have a larger flexibility to credit these expensive, and they could even save some money.
In this article, you will find more information about taxes the administration establishes in the UK.
Other Benefits of Setting Up an LTD in the UK
Founding Members
It is not necessary to have other founding members other than yourself. You will be business’ director and shareholder at the same time.
Protecting your Business Name
Unlike sole traders, limited companies can register their business name in the Companies House. Doing so, they ensure that nobody else can use it (not at least without legal repercussions) not even if it only presents some similarities.
Thanks to this, your company will be able to keep its own identity with which stand out of competition, in addition of avoid that copies of your products are sell as authentic.
Startup Costs
Fees for establishing a limited company are lower than in neighbouring countries. You can set up an LTD for 50 GBP.
In addition, it has the bonus that every LTD formation procedure can be done online.
In this webpage, you will find fees to pay to the Companies House for different services or business structures.