Should I form a Limited company?

Should I change from being a sole trader and form a Limited Company?

Thinking about becoming a Limited Company? 

There are a lot of things to consider if you are thinking about changing from being a sole trader to forming a Limited Company.

Here are some key points to keep in mind if you are considering operating your business as a Limited Company rather than sole trader. 

Legal structure of a Limited Company

A sole trader operates as an individual, while a limited company is a separate legal entity.

A Limited Company has Limited Liability

As a sole trader, you have unlimited liability, meaning your personal assets are at risk if the business fails. In a limited company, liability is limited to the company's assets, protecting your personal assets to a certain extent.

Tax implications of forming a Limited Company

Sole traders pay income tax and National Insurance Contributions (NICs) based on their profits, while limited companies pay corporation tax on their profits.

Directors of limited companies pay income tax and NICs on their salaries and dividends.

Administrative requirements of forming a Limited Company

Understand the administrative responsibilities associated with running a limited company such as filing annual accounts and confirmation statements with Companies House, maintaining statutory records, and complying with company law.

Financial reporting requirements of forming a Limited Company

Limited companies have more stringent financial reporting requirements than sole traders. You'll need to prepare annual accounts in accordance with accounting standards and file them with Companies House. Consider hiring an accountant to help with these obligations.

Enhance your professional image when forming a Limited Company

Operating as a limited company can enhance your professional image and credibility, particularly when dealing with larger clients or suppliers who may prefer to work with registered companies.

Shareholder and Director Responsibilities when forming a Limited Company

If you're the sole owner and director of your limited company, you'll need to understand your legal duties and responsibilities as a director, including acting in the best interests of the company and avoiding conflicts of interest.

Impact on employment status when forming a Limited Company

If you have employees as a sole trader, you'll need to consider how their employment status will change when you transition to a limited company. They may become employees of the company rather than working for you directly.

Impact on banking and finance arrangements when forming a Limited Company

You'll need to open a business bank account in the name of your limited company and transfer your business finances accordingly. Some banks offer specific accounts tailored to the needs of limited companies.

Seek Professional Advice when forming a Limited Company

Seek advice from an accountant, solicitor, or business advisor before making the transition. They can help you understand the implications for your specific circumstances and ensure a smooth transition process.

How can AWS Accountants help when forming a Limited Company?

By carefully considering these factors and seeking professional advice where necessary, you can make an informed decision about whether transitioning from a sole trader to a limited company is the right choice for your business

AWS Accountants can help you to decide the best route for your situation and if you do make the leap, I can form the Company, register your business with HMRC and support your ongoing accounting and tax requirements.