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Setting up as a Limited Company?

The first decision a new business owner must make is what type of business they are going to operate. A Sole Trader? Or a limited company. There are pros and cons to both business structures and we explain some of the potential pros and cons of owning and running a limited company to help you get started. What is a limited company?

A limited company is a type of business which exists as a separate legal entity to its owners. Being a separate legal entity means that everything the company owns as an asset, owes to its creditors, and earns as income, belongs to the company and is totally separate from the personal assets of the business owners.

Limited liability literally means that any liabilities, such as the debts of the company, are limited to the company itself rather than the people. As a result there’s less risk to the people who own and run the company, and their personal assets are safe if the company fails.

What are the different types of limited companies?

Yes, there are different types of limited company in the UK, and their rules and requirements vary slightly. The four most common types are:

  • Private companies limited by shares (the most common type)

  • Private companies limited by guarantee

  • Private unlimited companies

  • Public limited companies

Who can form a limited company?

Anyone can register a private limited company however there are some restrictions on who can be a director.

Directors are responsible for the day-to-day running of a company, and particularly in smaller companies tend to be the shareholders / ultimate beneficial owner, so they need to be capable of doing the job. They’re also not allowed to be:

  • An un-discharged bankrupt

  • Disqualified from being a director

  • 15 or younger

What are the advantages of setting up a limited company?

Limited liability in a limited company

One of the main advantages of setting up a limited company is the separation and protection of the Director/Shareholders. Whilst sole traders aren’t legally separate from their business, the owner of a limited company is. This means that the responsibility for any liabilities (such as paying debts) stays in the company.

Your company might have more credibility

Limited companies are subject to additional requirements such as registering with Companies House, and filing regular accounts which can be viewed publicly. Having the ability to check the company in this way will potentially increase the attractiveness of the business to potential customers and suppliers.

Better tax efficiency and planning

It may be more tax efficient for a business owner to operate as a limited company rather than a Sole Trader. This is due to the differences in how sole traders pay tax and National Insurance, compared to taxation for a company and its directors and shareholders. If you make pension contributions through your limited company this can also be more tax efficient.

Contact CJR Grantham Accountants if you want further information on operating as a Limited Company and the differences in taxation.

What are the disadvantages of running a limited company?

Business Information Public

In order to register the limited company on Companies House, you must provide the details of all company directors, such as their name, address, nationality, and date of birth, as well as a company address or registered office address if this is different. If you are a small business owner, perhaps using your personal residence as the registered business address, this will be shown publicly on Companies House.

Dealing with tax and accounts

Sole Traders typically submit a self-assessment tax return to HMRC once a year and report on their income and expenses. Limited Companies require a slightly more complex reporting regime.

A limited company will need to submit Statutory Annual Accounts to Companies House, which will be made public, in addition to a Company tax Return to HMRC. Depending on the size of the business, the reporting requirements and the information you will need to disclose may be complex.

These are only a handful of aspects to consider when choosing what type of business you want to operate. If you have any specific requirements or any questions around what is best for you and your business; please contact CJR Grantham Accountants by email at or phone 07827328064.



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