What are the requirements of an individual setting up a limited company?As stated, you declare one director and one member. You must declare a registered office address which will be the official address of your new company. This address has to be in the same jurisdiction in which you are choosing to incorporate. It must be a real, physical address (i.e., not a PO Box number) where official and legal mail can be received. It will be published on the Companies House website as a public record. It is important to keep all your statutory company records there if a public inspection should occur.
How long does it take to set up a limited company?There are company formation agents who can set up and register a limited company for you. If you prefer to do it independently, you are permitted to do so with the supply of the following details:
- Company name
- Registered office address
- Obtain a SIC code that defines your activities/operations. This is obtained via the Companies House webpage.
- Update your company formation application with the SIC code (up to 4 of them).
- Declare details of directors, including service addresses
- Declare details of members, including service addresses
- Memorandum and articles of association (a memorandum states who the founders are, i.e. you) and the Articles of Association are the rules of how the company will be run.
- Details of the company’s people with significant control
Is a partnership a better option than a limited company?A partnership has a very different structure from a limited company, but both have advantages and disadvantages. A partnership has two or more people owning a business and sharing the responsibility. Here are the pros and cons.
Advantages of a partnership
- Tax efficiency – you draw earnings, not a salary through PAYE, and National Insurance contributions are unnecessary.
- Unlike a limited company, you do not have to register at Companies House, but you should draw up a partnership agreement via a solicitor.
Disadvantages of trading as a partnership
- Joint and several liabilities – This is a biggie. Each partner is equally personally liable to the entire debt of the business.
- If one partner cannot afford to repay debt and goes bankrupt, the entire liability falls onto the remaining partner(s).
- If a partner leaves a partnership business, they may still be liable if the business becomes insolvent later on.
- Shared responsibility – This can often lead to disputes over an individual’s perception of a fair sharing of the workload, especially when non-tangibles like design thinking are involved.
What is a limited liability partnership (LLP)?This is a corporate structure that limits the liability of the partners. It is similar to a limited company but has the additional factor of a partnership. You get the benefit of a partner but with the risk mitigation of limited liability. Directors/shareholders own a limited company and all its profits, but they do not own its debt.
Advantages of a limited company
- Directors are not personally responsible for the company’s debt. Their personal finances are protected unless it can be proved that they were personally negligent. Additionally, if authorities can prove a director has acted fraudulently, they will be held personally liable.
Disadvantages of a limited company
- A limited company must register and file a confirmation statement at Companies House.
- Corporation tax is payable by the company, and the directors can be taxed on their income.
- Director duties and legal responsibilities are greater in this structure.
- Higher accountancy fees.
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