A COMPANY (aka Limited Company- Private Limited Company - Incorporated)
A 'company' is a limited company with directors and shareholders.
Limited companies must have two directors, with one of those directors also acting as the Company Secretary.
1. Company Name
No two company names can be the same - i.e. Acme Limited and Acme Limited. However, Acme Limited and Acme Co Limited is OK. Certain words are controlled Company Names, such as 'Royal', 'England', 'Institute', 'Association'.
2. Why Form A Limited Company?
(a) Limited Liability In my experience, the main reason for the small business owner to become a limited company is the 'Limited Liability' afforded to it's directors. This reason is closely followed by the 'Perception' of having 'Limited' after your name as being desirable (which in many cases it is). Third, it is believed that 'Credit' (be that from the bank or suppliers) will more readily be offered to limited companies.
'Limited liability' is afforded to company directors to help maintain the entrepreneurial spirit of the small British business owner who is known as the backbone of British commerce and industry (I cannot think of another reason). Limited liability has been abused for many years, and will continue to be so for some time. The government is addressing the need for new legislation to ensure the entrepreneurial spirit is maintained: we hope, without protecting the company director who shows, and intends to have very little, if any, care for their fellow business owner. Personal assets are at risk if malpractice is proved against company director/s by an insolvency professional.
(b) Perception Having 'Limited' after your company name can say different things to different people: I control a limited company, I administer a limited company, I am judged as being fit to run a limited company, and of course, I'm still trading as a limited company' (which is a minor feat after the first three years, I add).
(c) Credit "Lenders will more readily advance credit to a bona fide company." Banks will not lend to ANY limited company that it cannot secure the debt on 'real and convertible' company assets: like premises, book debts and machinery. However, banks will lend to a limited company where the director/s have security such as equity in their PRIVATE house and/or insurance policies, and will therefore demand personal guarantees.
Often the bank will want a debenture (list of assets secured against lending) with all the business assets, and private ones, before authorizing lending/overdraft facility in excess of, say, £10K. However, suppliers will not expect that level of security and they will probably assess your credit needs through a number of avenues using a Credit Policy. Being a limited company does not mean that creditors MUST give you credit.
3. Company Taxation
(a) PAYE & Income Tax
As a limited company owner you would pay yourself a salary which is subject to PAYE and you will have to complete a Self Assessment tax form each year to assess whether any other tax is due from company benefits etc. You must also deduct PAYE from all employees.
(b) National Insurance (NI) Limited companies have a responsibility to deduct NI from all employees - including directors - and also pay Employers National Insurance - ENI. This in effect doubles your national insurance contributions and is one of the most overlooked areas when forming a limited company.
The same VAT rules apply to a company as they do for a business.
(e) Other Benefits Being a limited company you will have to, at times, deal with Statutory Sick Pay (SSP), Working Tax Credit (WTC), Maternity Leave, Student Loans etc. You do not have an option not to deal with these issues if your employees require any of these benefits.
All businesses with five or more employees are required to arrange a Stakeholder Pension for their staff, with a fine of £50,000 for those who fail to comply. The scheme will affect all those earning between £9,000 - 20,000 (those earning less can still take part) and who work for companies that do not provide a corporate pension. If you employ a fifth employee you will have three-months in which to set up a Stakeholder scheme. The onus is firmly on the employer to set up the scheme.
Once you are a limited company you have a legal responsibility to the government and your employees. Companies must comply with legislation covering tax's (income tax, corporation tax, national insurance), health & safety, administration and employment.
Although all directors have the responsibility and liability for their actions the 'Company Secretary' is the one that the law will look to if the trading accounts are not filed or are late at Companies House, amongst many other duties.
If after reading the above, you have come to the conclusion that forming a limited company is the right move for you - you can form a limited company online.
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