WHY TRADE AS A LIMITED COMPANY
WHY TRADE AS A LIMITED COMPANY? A PRACTICAL GUIDE ASHBURTON REGISTRARS LIMITED 12-14 ST. ... TF10 7AB TEL: (01952) 270270 FAX (01952) 275000 CONTENTS Why Trade as a Limited Company? ... Limited Companies Page 5 Summary of Advantages Page 6 What Next? Company Names Page 7 Business Names Page 8 Shareholders Page 9 Directors & Company Secretary Page 9 Registered Office Page 9 Memorandum & Articles of Association Page 9 Authorised Share Capital Page 10 What You Have to Disclose When Trading Page 10 Forming Your New Company Page 10 Appendix “A” Audit Exemptions (Notes for Guidance) Page 11 Tenth Edition Copyright © 1998 Ashburton Registrars Limited Under the International Copyright Convention, the Berne Convention, and EC Statute, this publication is protected by international copyright law. ... Appropriate legal action will be taken against any person, company or organisation who breach this Copyright or who assist in any such breach. WHY TRADE AS A LIMITED COMPANY? ... A business may be operated by a sole trader, or two or more individuals may combine together to form a partnership, or a company may be formed to run the business. ... The recent introduction of Self-Assessment for income tax may also have a bearing on partnerships making it worthwhile them transferring all or part of their business into a Limited Company. Trading as a Limited Company will overcome the problems you will face when trading as a Sole Trader or Partner. If a Limited Company fails you cannot be made to pay the business debts, you are safeguarded against partnership problems, without the need for a costly agreement, and you are regarded as an employee of the Company so you can present payslips and P60s to banks and other lenders as proof of your income. ... There is another advantage in trading as a Limited Company - Status and Prestige. As a Limited Company you present your business as a much more professional and established concern. THE DISADVANTAGES OF TRADING AS A LIMITED COMPANY If it is all so advantageous why doesnt everyone trade as a Limited Company? Leaving aside the fact that the law insists that certain types of professionals, notably Doctors, Dentists, Solicitors, and Barristers, must either trade as sole traders or partnerships there really is no reason why any sort of business should not operate as a Limited Company. ... A Company has to be formed and registered with the Registrar of Companies. This requires a lot of form filling and legal process has to be carefully observed in order to satisfy the Registrar that the Memorandum and Articles of Association of the Company (the legal basis for the company) are properly drafted and comply fully with the requirements of the Companies Act. There are several ways to form a company. ... If you get it wrong the Registrar will refuse to register your company and you will have the inconvenience and expense of having to do it all again. Of course, you could go to a Solicitor or Accountant and ask them to form a company for you, but the chances are they will employ a specialist agent like ourselves to do the formation, simply because we can do it at a much lower cost. Our staff have many years experience in forming companies and we will form a company in England, Wales or Scotland for only £65-00, and in Northern Ireland for £75. ... You might be put off by the rules and regulations about what information you have to show on letterheads, written orders, receipts, written demands for payment, and by having to send an Annual Return to the Registrar of Companies detailing any changes in share ownership or directors, and listing certain types of borrowing the Company may have made. ... When we register a company we provide a 9,000 word guide to help to keep you on the straight and narrow, but, if you prefer, our business administration department can, for a small fee, provide a Company Secretarial service and take charge of these demands freeing you to do what you do best - run your own business! Until recently there was a much more serious disadvantage in carrying out business as a Limited Company. This was the requirement for all Limited Companies, whatever their size, to have their accounts audited every year, and a copy of these accounts deposited with the Registrar of Companies. Until about 6 years ago the audit fee for a small company was around £250 to £400, but in 1989 the Audit Regulations were tightened up. ... Audit requirements are the same for a small one man company as for ICI, BP or a multinational company. After 1989 the cost of an audit escalated and even a small company could face a bill for £1,000 to £1,500 every year. Whilst there were good reasons why the Audit Regulations were tightened up, none of these applied to small companies. A Statutory Audit is really a report by the Auditor to the members (shareholders) to confirm that the company is well run, that the accounts are being kept properly, and that the directors are not defrauding the shareholders. ... In 1994 the law was changed and now Limited Companies with a turnover of less than £350,000 need not have an audit and only need deposit a balance sheet with the Registrar together with a simple declaration from the directors as to its accuracy. ... Please remember that when we are talking about a Limited Company the terms “member” and “shareholder” are the same. ... As distinct from the position of a shareholder in a limited liability company, the entire personal wealth of a partner is available to meet the partnership’s obligations. ... LIMITED COMPANIES In Law a Limited Company is a separate legal entity and quite distinct from its shareholders or directors. There are three main types of Limited Companies which can be formed to trade in the UK: Private Companies Limited by Shares, Private Companies Limited by Guarantee, and Public Limited Companies. There is also a form called a Limited Partnership, but that is unusual and costly. In general most UK Companies are formed to be Limited by Shares and this is the type of Company we normally form on behalf of clients.