Understanding Limited Company Accounts

I have just uploaded my new video, 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...

- The Responsibilities of the owners (details about being a company director can be found here)

- The Accounts (stricter procedures must be followed and accounts must be prepared in-line with ltd accounting standards)

- What tax and how much tax you pay (corporation tax and dividend tax can have different rates to income tax)

- 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 a 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 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 differs from sole trader accounts. Limited company accounts also need to meet stricter rules and must be prepared and presented in agreement with limited company account regulations.

Tax - sole traders pay income tax on all business profits. Limited companies pay corporation tax on company profits. Shareholders pay income tax on dividends and 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 re-invest their portion of company profits. This amount is referred to as retained earnings

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