I have just uploaded my new video to my YouTube channel; a presentation cover the basics of limited companies.
You can watch the video below...
I have also made some notes about limited companies underneath the video presentation... Enjoy!
The difference between operating as a Sole Trader/Partnership and operating through a Limited Company is bigger than some may think
When transitioning from a sole trader to a limited company, it is important that you are aware of the changes and extra responsibilities this will bring.
Some of these changes include...
1. The added responsibilities of the owners. Details about being a company director can be found here
2. The financial accounts. Stricter procedures must be followed and accounts must be prepared in-line with ltd accounting standards.
3. How profits are taxed and how much tax you pay. Corporation tax and dividend income tax can have different rates to income tax. National insurance may also affected.
4. Legal changes. The ltd is a separate legal entity to the shareholder/owner.
The Private Sector consists of unincorporated and incorporated organisations
Unincorporated - Sole traders and partnerships
Incorporated - Public limited companies (plc's) and private limited companies (ltd's)
The main differences between Sole Traders and Limited Companies
Ownership - A sole trader is the sole owner of his or her business and is referred to as the owner. Owners of limited companies are referred to as shareholders. The company can be owned by any number of shareholders.
Legal Status - A sole trader is his or her business. A limited company is a separate legal entity to it's shareholders.
Liability - A sole trader (the owner) is liable for all business debt. Shareholders of a limited company are only liable up to the amount they have invested in the company.
Legislation & Regulation - Sole traders have very little legislation and regulation. Limited companies have much more.
Financial Statements - Terminology for limited company financial statements is different from sole trader accounts.
Limited company accounts need to meet stricter rules and must be prepared and presented in agreement with limited company account regulations.
Tax - Sole traders pay income tax and national insurance on all business profits. Limited companies pay corporation tax on company profits. Shareholders pay income tax on dividends and PAYE on salaries.
Other things unique to limited companies...
Terminology - Statement of comprehensive income, inventories, trade debtors, dividends, etc
Director's Remuneration - Directors can take a salary from the company. This is an expense to the company and not recorded as dividends
Retained Earnings - Directors and shareholders and reinvest their portion of company profits. This amount is referred to as retained earnings
If you need some extra guidance or have some questions, please get in contact - firstname.lastname@example.org.
If you are a sole trader or limited company and are in need of accounting services, please send me a message here
The Bookkeeping Master