If you’re a sole trader who feels like you’ve hit the glass ceiling and are ready to break through, setting up a limited company could be the most logical next step for your business. Not only is it a more tax-efficient way to manage your work, but it’s also a way of building your brand and reaching out for the kind of work that might not be available to a sole trader.
However, setting up a limited company is a little more complicated than filling in a few forms and ticking a few boxes. So, if you don’t know where to start, we’ll take you through the process step by step – from selecting a name to business registration. But let’s start with the basics.
What is a limited company?
In essence, a limited company is a way of separating your personal and professional identity. There is no distinction between a sole trader and their business, but a limited company is a separate legal entity. This means your business is liable for any debts it accrues rather than you personally, which is the primary benefit. It does mean more paperwork and more responsibility, but for many the benefits will far outweigh the drawbacks.
What are the advantages of a limited company?
Not only does trading as a limited company offer legal separation between you and the business (meaning you only lose what you put into it), but it’s also more tax-efficient than trading under your own name. From a purely aesthetic perspective, it also makes you seem more professional to investors, customers and suppliers if you’re trading as a limited company.
What are the disadvantages of a limited company?
Alongside the additional administration and legal responsibilities, your information will also be made public at Companies House. The actual cost of registration, however, is little more than £12.
How to set up a limited company
There are three key steps involved in setting up your limited company
1. Choose a name
Deciding on a name might seem like a rather straightforward task but when registering as a limited company you have to ensure the name you settle on is not too similar to a name that’s already been registered. Start with a simple online search but also check the Companies House register and Intellectual Property Office to make 100% sure. Also, as a limited company, your name must end in either Limited or Ltd.
2. Figure out who is in charge
By law, a limited company needs at least one officer in charge of the business. If you’re a sole trader and plan to continue operating by yourself then this is going to be a no-brainer as you will be the company director by default. If your operation is a little larger and you have somebody else in charge of your accounts, for example, they are typically assigned as company secretary. At this stage, you’ll also need to choose a registered office address. This could be your home address – it doesn’t need to be the actual trading address of the company. It is, however, where all official documents and legal notices will be sent.
3. Register your limited company
Registering your limited company with Companies House requires completion of a series of documents. These include a Memorandum of Association, Articles of Association and an IN01 form. All of these forms can be submitted online and templates are available to download if you’re unsure where to start. If you would rather let a third party take care of the specifics, however, you could use a company formation agent or solicitor to register your limited company for you. This is the more expensive option, but it’s also the fastest and most thorough.
We can help
If you’re interested in learning more about how to set up your limited company then get in touch with the financial experts at GoCardless today. Visit our website to find out how GoCardless can help you with ad hoc payments or recurring payments.