A small liability company formation carries several substantial benefits to small and medium sized self employed businesses. A small company formation effectively creates a brand new corporate body distinct from the owners of the business, shareholders, which protects those owners from unlimited personal liabilities in nearly all circumstances and can hold significant tax advantages which vary from year to year
Incorporation does carry additional responsibilities to being self employed. The company formation requires the submission of the incorporation details to Company House which must be updated and confirmed each year through the Company House Annual Return. Audited financial accounts must be filed annually both with Company House and the Inland Revenue.
Every limited liability company should have formally appointed company officers at all times. A personal limited company should have a minumum of one director, the business articles of association may require multiple, and each limited liability company should have a minumum of one company secretary. While a director can be the business secretary a sole director cannot.
Limited Liability Company Formation
Starting a small liability company in the UK isn’t complicated, company formation requiring the two Company House forms, 10 and 12, and the submission of a memorandum and articles of association to accomplish the business formation and registration.
Company House Form 10 provides information on the very first directors and intended situation of the registered office. A title check should really be carried out with Company House to ensure the proposed name is available and suitable and the proposed limited liability company name entered on form 10 with limited as the past word. Also check addresses and post codes with Royal Mail to prevent the company formation registration being rejected. Company House form 10 must be signed by either by or for the subscribers to the memorandum Of association.
Company House Form 12 is just a legal declaration that the limited liability company formation facts are true and can be signed by a solicitor engaged in the limited liability company formation or even a person named as director or company secretary on form 10 under section 10 of the Companies Act 1985.
The Memorandum of Association sets out the objects and scope of the proposed limited liability company stating the business name with information on the subscribers to the Memorandum of Association witnessed.
Table A is just a standard format of some Articles of Association, a statutory document that governs the inner affairs of the limited liability company and it is advised that Table A, 內地註冊公司 Articles of Association is adopted in its entirety.
Adhering to a final check to ensure accuracy submit all 4 documents to Company House or apartment with the business registration fee and the business formation is complete.
Company Formation and Corporation Tax Advantages
Sole traders pay income tax while a small liability company pays corporation tax which is really a tax payable on the business net profit. The taxation advantages and disadvantages change from year to year as government policy in relation to tax rates and allowances change. Just before 5 April 2006 there is a considerable tax advantage in a business formation as the very first £10,000 of taxable profit made by a small liability company was zero compared to being self employed where the normal tax allowance being an individual could be £4,895 and 8% national insurance contributions also being charged on net self employed profits.
The zero tax rate for the very first £10,000 of limited liability company net profit was removed in the 2006 Budget leaving the corporation tax payable on net profits of £0 – £300,000 for small companies at 19%. The scale of the tax advantage in incorporation is based mostly on the particular level and expected degree of net profit. Generally self employed businessman paying all his tax at the low income rate of 22% would not gain a significant tax advantage, while anyone paying the personal tax rate of 40% would show significant tax advantages compared to the corporation tax rate of 19%.
Benefits of a Limited Liability Company
A sole trader receives no protection from the business liabilities should the business encounter financial problems whereas the liability of the shareholders in a small liability company is restricted to the quantity subscribed for that shareholding. Generally limited liability becomes less clear in reality. Banks and credit institutions often require directors of a tiny and newly formed limited liability company to offer personal guarantees against loans and credit.
Additionally directors should be aware when starting a small liability company which should that company encounter financial difficulties and become insolvent the directors themselves may be financially liable for almost any debts incurred if the business continues to trade after the directors became aware the business was insolvent. This is the reason administrators of companies that get into liquidation often immediately cease trading to avoid themselves as administrators being held liable for almost any subsequent debts being incurred.