When you start a new business there is a lot to think about and plan. One of the many important decisions that you will need to make is whether to trade as a sole trader or as a limited company. This Limited Company Guide will provide some detailed insights into starting and operating a limited company, I suggest that you also take the time to read or watch my Sole Trader 101 Guide.
What is a limited company?
A limited company is a business that has registered to become limited. There are a few different forms of limited companies, such as limited liability partnerships (LLP's), public limited companies (PLC's) and private limited companies (Ltd's).
Characteristics of a limited company
Limited companies greatly vary in size, turnover and the amount of employee's. Usually new and very small businesses are sole traders and larger businesses are limited companies, there are obviously exceptions to this 'rule'.
Directors and shareholders can take their share of company profits through dividends. Company directors can also take a wage or salary from the company, this is accounted as an expense to the company and is tax deductible.
Advantages of being a limited company
Company liability is limited to the amount invested in the company. Personal assets can be ring-fenced against insolvency
There can be some tax advantages to operating through a limited company
Operating through a limited company can give off more of a professional image than a sole trader business
Once your business is registered, the company name is protected by law
Share holder investment is available
Disadvantages of being a limited company
There can be some tax disadvantages to operating through a limited company
More complex accounting, administrative and legal procedures than sole traders
The Final Accounts
Financial statements (statutory accounts) are prepared from the companies financial records. These need to be submitted to HMRC and Companies House. The accounting statements will need to include...
A profit and loss statement - this shows the amount of profit or loss for the company over a certain period
A balance sheet - this shows the assets and liabilities of the company.
Notes about the directors
A director's report
To help learn the material in this post, please check out my Limited Company Guide video below...
If you would like to learn more about bookkeeping and accounting for a limited company, please consider taking my Exclusive Bookkeeping and Accounting Course.
I can book-keep and file your ltd company accounts, please email me for details firstname.lastname@example.org