Going Ltd.. why?

[DarrenC]

I started reading the thread at the top of this forum, and got confused.

What are the advantages of going Limited?

- my primary business doesn't make a profit (at the moment)
- the business is internet based - run from wherever my laptop is
- business in it's 4th year of business (part-time)
- no staff employed

Most people would have given up a long time ago, but I'm persistant, and I want to make the business successful.

If I registered as a limited company what would the total cost be - and what would the costs be?

If I registered on top of income tax and national insurance, what else would I have to factor into my accounts?

Would I have to employ an accountant?

Would I have to employ a solicitor?

What are the disadvantages of running a business as a soletrader?

Plenty of questions :)

Darren

[DarrenC]

Sorry to bump up the post, but Im surprised no one can answer any of the questions on this thread - I am sure I'm not the only person who has these types of questions.

Help! :)

[Ravenfire]

Im interested to know this myself

[creospace]

Me too!

[Alpha]

Sorry to bump up the post, but Im surprised no one can answer any of the questions on this thread - I am sure I'm not the only person who has these types of questions.

We can answer them its just a very long answer and much has been covered in other threads.

To attempt to summarise

Advantages of a limited company

1) The liabilities of the company are limited to the assets held within the company so if it goes buust there is usually no comeback on the shareholders personal property (but see later)

2) There is still the (incorrect) belief that a company is more substantial than a sole trader/partnership and there are still companies that do not deal with sole traders (although becoming fewer).....plus not being registered for vat is a bit of a giveaway in most circumstances :)

3) They are currently more tax efficient if the profits are over £25k and under £300k by using a mixture of salaries and dividends, and profits can be retained in the company instead of passed to shareholders so personal tax can be manipulated.

4) It is easier to take on new investors in the company (by issuing shares)

5)It is also easier to sell a share in the company than a part of a partnership.

6) A company can create a floating charge over its assets in order to borrow more money (Usually limited to larger companies not startups)

7) As the company is a seperate legal entity the vat registration is with a single business.

Disadvantages

1) There are more admin and costs to running a limited company -

An annual return has to be filed at companies house

Accounts have to be produced in a set format and again filed which means that the general public have access to them (for a small fee).

Money belongs to the company not the individuals therefore to take money out of a company you have to pay a salary or dividends. If dividends then all neccessary procedures and paperwork need to be completed (Minutes of meeting, dividend vouchers etc)

Due to above accountants costs are higher.

2) Although liability is limited lenders will often insist that shareholders/directors give personal guarantees which will often negate much of the limited liability (The lender can still get the money from you personally)

3) It is more difficult to close a limited company than sole trader.


If I registered as a limited company what would the total cost be - and what would the costs be?

Costs would be

Cost to form the company anything from £35 if you do it yourself to around £250 if you get someone to do it (includes producing minutes, share certificates, vat and PAYE registration, certificate of incorporation, bound memorandum and articles, assist in opening bank account)

Annual return £15 pa if filed online or £30 if filed by paper.

Accountants costs depends on size of company and nature of trading etc say for a small company around £550.



Would I have to employ an accountant?

Quite probably unless you can produce accounts in stautory format and complete a corporation tax return.

Would I have to employ a solicitor?

Not neccessarily if you are the sole shareholder. If there are other shareholders it may be advisable to get a solicitor/accountant to draw up a shareholders agreement.

What are the disadvantages of running a business as a soletrader?

Mainly the opposite of what is covered in advantages of a limited company.

unlimited liability (you/partners are personally liable for all debts)

lack of flexibility in admitting other investors

VAT registration is for a sole trader personally so you could not have two businesses as a sole trader, one of which is vat registered whilst the other is not.

If I registered on top of income tax and national insurance, what else would I have to factor into my accounts?

A company pays corporation tax on its profits (currently 19% at the lowest level).

If it pays a salary or gives benefits in kind to its employees/directors then it pays employers NI at 12.8%.

The employees will pay tax/NI personally which would be deducted by the company and paid over monthly/quarterly)

Hope that answers your question but if I've missed anything then please do not hesitate to ask (Or any other accountants feel free to add)

[refreshious]

check the sticky thread at the top called "going limited"

[DarrenC]

I have checked that thread, and as I mentioned in this thread, I was confused by the discussion in there.

Wow what a post Alpa - very very helpful :)

Accountants costs depends on size of company and nature of trading etc say for a small company around £550.

Is that £550 a year?

What is the annual amount you have to earn before you pay VAT? If, you don't earn that amount, can you still apply to be VAT registered? I'm assuming that you still don't charge people VAT?

I think that's it for now :D

Darren

[Jayne]

I have checked that thread, and as I mentioned in this thread, I was confused by the discussion in there.

Thanks Alpha - I'll had a good read and come back with some more questions I am sure :)

Darren


How's your head today? Have you sobered up yet? :D


I wasn't that impressed with the Ltd thing, when I asked. I decided to stay a sole trader. Loads of faffing about Darren!

Jayne :D

[DarrenC]

Jayne the head is throbbing :lol:

Faffing around - your not kidding, I can't see any real benefit of going limited.

There is still the (incorrect) belief that a company is more substantial than a sole trader/partnership and there are still companies that do not deal with sole traders (although becoming fewer).....plus not being registered for vat is a bit of a giveaway in most circumstances

This is the only benefit I can see of registering the business limited.

Darren

[gordonthegofor]

I did not think it was made clear that limited companies have the same vat threshold, And as with sole traders don't need to register for Vat until they reach the turnover threshold

[Jayne]

That's the only thing I picked up on too. I would do business with sole traders, so If I will, others will too.

Jayne :D

[DarrenC]

Gordon, what is the threshold - I know it says it on the wotsit website, but I'm being lazy :D

Jayne, yes true, but I do think larger companies though look down on you if your a little soletrader like me.

[gordonthegofor]

I think it is £60,000

If they look down on you there are missing out on a lot of personal attancion and help

[Ravenfire]

Ahh thanks I didnt see that as I did view last post to see this one!

[Alpha]

Is that £550 a year?


Yes


I did not think it was made clear that limited companies have the same vat threshold

Wasn't asked for and did not have any relevance to the question which was asking about advantages and disadvantages :)

[DarrenC]

Many thanks Alan.

All of your advice is appreciated - need to go away now and make a few decisions.

Darren

[gordonthegofor]

I did not think it was made clear that limited companies have the same vat threshold

Wasn't asked for and did not have any relevance to the question which was asking about advantages and disadvantages :)[/quote]

Sorry Alan was not trying to criticize but thought it was relevant

[DarrenC]

Any information to assist people is useful - thanks Gordon :)

[bwglaw]

There are legal perspectives to consider also. Alan has covered many tax and some legal aspects.

The Ltd Co can be sued, not yourself whereas as a sole-trader a claim is brought against you personally and your personal assets can be affected.

You do need to think whether going Ltd has many tax advantages for you taking the advice Alan gave.

I would not advise on going Ltd just for the legal 'protection' if your 'side line business'(if I may call it that since you stated you are in f/t employment) is not making much money.

Have to dash - sorry it short but feel free to email me.

Jonathan

[multilingual]

We went Ltd for tax reasons but you need to be making a healthy profit before the advantages kick in, and as you are currently making little (or no) profit then I would suggest you stay as you are.

JB

[DarrenC]

Thanks Jonathan, and JB.

That's what I have decided to do - rang a few people up today, and took what you guys and gals said into consideration.

Darren

[rickyboy]

Businesses with annual sales below £61,000 don't have to register for (and therefore charge) VAT. If they don't, the price you pay for their goods or services may be cheaper than if you bought the same goods or services from a VAT-registered supplier.

[HungryPlanet]

As we started as a Limted company and did not seek out much information on the benefits, I can not say how the others would be better. However all the extra costs of the book keeper and a firm to draw up company accounts/ corp tax and VAT and PAYE have all added up fast.

Benefits? Well... some seem to take us more seriously and give us credit terms for buying stock.

Overall I think Limited Liability Partnership might have meant cheaper prepared accounts? However my business partner could have been a problem, he has a poor credit rating. I have had to take all the company loans out as the sole Director, and guarantee them personally! So the debt is not "Limited"to the Company any more.

I have been told to wait till the company end of year before we change status or we will have to prepare two sets of accounts.

Can anyone be more positive for Ltd companies?

[samkma]

Currently I am a sole trader and would like to set up a Single member Ltd Company for a different business, I wish to know if I can keep my present trade as it is? what is the procedures for incorporating the company. Any help appreciated.

[samkma]

Currently I am a sole trader and would like to set up a Single member Ltd Company for a different business, I wish to know if I can keep my present trade as it is? what is the procedures for incorporating the company. Any help appreciated.

[samkma]

bump......

[karenhill]

Samkma,

If i was you, I would not open a LTD company unless I was earning a full time wage from it.
Honestly don't waste you time unless you have a good reason to do it.

[SneakSMS]

why have you dragged up a post that's nearly a year old?

[karenhill]

Sorry, i did not realise it was a problem. I found this post on google.

If this is not allowed, maybe the webmaster should close the thread.

If this is allowed, what are you trying to acomplish with your comment?

[SneakSMS]

Sorry, i did not realise it was a problem. I found this post on google.

If this is not allowed, maybe the webmaster should close the thread.

If this is allowed, what are you trying to acomplish with your comment?

I'm trying to see the point of dragging up a thread that hasn't been touched for nearly a year. It's not that it's "not allowed", it's more that it doesn't achieve a lot.

I'm sure good advice would be much better appreciated on live topics, rather than long dead ones.

[FreelanceSoftwareDeveloper]

It's not disallowed but I doubt the person you are responding to is still sat waiting for an answer :D

Welcome to the Forum anyway!!

[karenhill]

If you go to google and type "going ltd" this thread comes up in first position.

Ok i did not make the best post, but its still relevant to other people, it's what i searched for at the end of the day.

Thank you for the warm welcome. Its a pleasure being here.

[david828]

i am new here. but really I was impressed that people are so pleased to share tips and experiences.