A guide to small business liability get incorporated or take a chance
If your business runs up debts, who is responsible for covering them? Unless limited status has been secured, covering small business liability, that falls to you.
A limited company ensures all members of the business have limited liability their liability in the business is capped at what they have invested in the company.
In practice, what this means is that the business is a legally separate entity from the people who run it, and its finances are separate from personal finances. Limited liability is a great advantage as it means limited risk.
the director’s/shareholder’s personal property and actives will not be used to cover any debts which occur by the company activity. This is the main advantage of creating a limited by shares company, explained Evan Kenty, director of ZDK Formations Limited, a registered Companies House Agent.
Some business types, such as sole traders, do not have this advantage. Someone operating as a sole trader has no separate legal existence from their business, and is personally liable for the business? debts. This is, by contrast, unlimited liability.
In the UK, there are two kinds of limited company public limited companies (plcs) and private limited companies (ltds). In private companies, there are restrictions on who can purchase shares, but in a public company they are open to everyone.
What are shares?
A share is a portion of the business, and a shareholder is someone who has purchased shares and therefore a stake in the business. Sometimes, shareholders are referred to as members of a corporation.
Often, founders are keen to remain the majority shareholder, which means retaining at least 50 per cent of the shares. In doing this they can retain control of the business while still selling shares to raise share capital.
the number of shares can range from one share to one million shares. Usually people use 1, 000 shares priced at 1. It is also included in the application for company incorporation, said Kenty.
because shareholdersare acompany’sowners, they reap the benefits of thecompany’s’successes in the form of increased stock valuation.
What is required?
To set up a private limited company, you need to register with Companies House in a process known as incorporation.
To get started, the business will require at least one director, who can also be a shareholder and a secretary in the company.
Letitia Booty is a special projects journalist for Business Advice. She has a BA in English Literature from the University of East Anglia, and since graduating she has written for a variety of trade titles. Most recently, she was a reporter at SME magazine.