The difference between setting up a limited company and registering as a sole trader involves the personal financial liability involved. As a sole trader you are personally liable for any debts incurred if the business fails; whereas if you are part of a limited company you have certain protections against debts. This must be balanced against the higher administrative costs involved with a limited company when compared with registering as a sole trader.

Why Choose the Limited Company form for Your Business?

A limited company is legally responsible for its finances and actions. The financial details of individuals are a separate entity from the limited company. There are two types of limited company; public and private; private limited companies can have shareholders but shares are not sold on the stock market. A public limited company is free to sell its shares to the public on the stock market.

If you own a limited company there can be a certain cache attached to it, providing you credibility in the eyes of partners, investors, suppliers and most importantly, customers.

As an owner or director of a limited company you are only liable to risk losing money you’ve invested in the company, rather than any and all company debts as would be the case if you were a sole trader. You are only liable for any bank loans if you have provided a personal guarantee for the limited company.

Setting up Your Limited Company

This can be performed online at Companies House, or you can pay a small fee in order for an accountant, agent or solicitor to do so on your behalf.

In t Terms of names for limited companies there are ready-made ones available to purchase, alternatively you can form an entirely new limited company which is easy to do. You just need to send Companies House the following documents:

Memorandum of Association: This lists the limited company’s name, registered office and the nature of the business. It has to be signed by the director’s in front of a witness.

Registered Office: Companies House requires the official address of the company for all correspondence.

Articles of Association: Set the rules for the running and regulation of the limited company.

A completed IN01 form.

The documents involved with setting up a limited company cannot be provided by Companies House but it is not something to worry about as you can find all relevant documents through a company formation agency or legal stationer.

What can You Expect as a Company Director?

There are a number of legal responsibilities linked with becoming a director of a limited company that you should take into account before setting the company up.

A private limited company has to legally appoint at least one individual as a director, who can also hold shares in the company. There are a few reasons why someone cannot become a director of a limited company; these include having been disqualified from acting as a limited company director, if they are under the age of 16 or are an undischarged bankrupt.

If any changes occur within the structure of a limited company the directors have a legal duty to inform Companies House.

Help Setting up a Limited Company

There are plenty of things that you should consider when forming a limited company. One of the most important could be assistance in the form of a virtual address for your new business. In these crucial early stages of forming a limited company it is much safer and easier for correspondence to not use your home address.

We have a number of short guides relating to start-up businesses and the administrative, legal and financial aspects involved. There is plenty of specific information available that can provide you with the solid base of understanding to make the right decision for the formation of your new business.

You can also join our Google+ Community “Startup in Britain” which is packed with help, resources and articles to get you started. Use it to get tips, advice and start building your network! 

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