Many contractors or freelancers who may initially have been umbrella, or in some cases ‘Sole Trader’ may find that setting up a Limited Company can offer the best long term solution for a number of reasons. There are three types of these in the UK which are: Private Limited Company (Ltd); Public Limited Company (PLC) or a Community Interest Company (CIC). A CIC is a structure used for community organisations and PLCs allow you to sell shares to members of the public. Both are not relevant structures to contractors – so we will focus on a Ltd Company below.

The advantages of Limited Companies

The first significant advantage offered is that they are ‘limited liability’ structures. This means that the shareholders of the company are not liable for its debts should it fail. In the case of contractors and freelancers the shareholder is normally the individual contractor – though ownership can be split between different people including family members.

LTDs have an existence in law in their own right – registering them is a little like registering a birth! The company is responsible for its own debts, has its own bank account and applies for loans and finance in its own right.

Unlike sole traders, limited company profits are subject to corporation tax whereas a sole trader will pay personal tax on any profits. Payroll and PAYE systems are however required to be in place to pay employees (the contractor). In general it is advisable to have an accountancy firm to deal with this responsibility for the company.

Requirements for Limited Companies

A limited company will require at least one company director – anybody can fulfil this role as long as they are not an un-discharged bankrupt. One shareholder is required – a minimum requirement of one shareholder owning a share of £1.00 is all that is necessary and the shareholder can also be the director. The requirement for a company secretary is no longer in place for a limited company (only a PLC).

Three main documents will be required to set up a limited firm and these are as follows:

- The Certificate of Incorporation: This is the company’s birth certificate and creates the company as a legal entity.

- The Memorandum of Association which includes the address of the company and defines what it will do; standard document templates are available to create this document.

- The Articles of Association which describe how the company will be run.

Who can set up a limited company?

Anybody can form one in the UK, regardless of their own nationality – remember the company becomes a legal entity in its own right. Any name can be used as long it is not already in use. They are registered in the UK at Companies House and the process is relatively straight forward and can be done by an individual. Many contractors choose to use the services of an accountant or company formation specialist to do this, however, as using an experienced professional can ensure that problems are not encountered later – important particularly in the complex area of tax responsibilities.

For the self-employed, tax can be a headache. Using an umbrella company or forming a limited company can be an efficient way to manage tax affairs, but ensuring you get the right structure for your business is essential.

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So, you’ve just won your first contract and your agency is asking you for the details of your UK limited company. What do you do; should you setting up a limited company? How do you know whether the limited liability company route is best for you, or would an alternative trading option be better? There are advantages and disadvantages to running UK companies. It is your personal circumstances, your career plans and aspirations and the nature of your contract that will determine the right trading option for you. You may also find that the decision is taken out of your hands, and that your agency or client insists that you set up a limited company before they will even do business with you.

UK limited company advantages

Company formation is incredibly fast and inexpensive. You can register a limited company with Companies House, the UK agency which regulates every ltd company in England and Wales, in a matter of hours and for as little as a few tens of pounds if using an online service. As a contractor you can benefit from significant tax advantages by trading through a ltd business. Most contractors pay themselves a minimum salary and take the company profits as dividends, which can result in much higher take-home pay compared to being paid a salary from other trading options.

You can claim legitimate business expenses from your own ltd company, such as the costs of running a home office with all the computers, software and equipment that requires, plus travel expenses, subsistence and even training costs. And, as its name suggests, a limited liability company can protect your personal assets, such as your home, if the worst happened and a client decided to sue your company.

Disadvantages of a limited liability company

Even though your company is a separate legal entity from you personally, you still have duties, obligations and responsibilities as a shareholder and director. This would not apply were you to contract via an alternative trading option.

After you register a limited company, you must send annual accounts prepared by your accountant, annual returns and notifications of any changes to shareholdings and company officers, such as directors and company secretaries, to Companies House

Your UK limited company must also file a corporate tax return with HM Revenue and Customs, the UK’s tax collection agency; failure to do so can result in fines and even criminal prosecution.

Evaluate the pros and cons before deciding

Setting up a limited company can bring you many benefits, such as increased take-home pay, the ability to claim business expenses and protection from clients looking for a scapegoat.

But some contractors feel the burden of paperwork, such as corporate tax returns, and the responsibility of running a company are too great and choose alternative options for contracting.

Consider the pros and cons and consult a professional, such as a contractor accountant, before making your final decision about whether registering a limited company is right for you.

Dave Chaplin was an IT contractor in the City and knows what it takes to carve out a successful contracting career. He has turned all his and dozens of contractor experts’ experiences into a fantastic resource of guides, advice & detailed contractor information, including loads of guidance about setting up a limited company, which you can download free from http://www.contractorcalculator.co.uk.

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A limited company needs to pay for corporation tax based on its income and profits. The limited liability company should have a PAYE or “Pay As You Earn” system which is responsible for collecting income and paying for the income tax as well as remit contributions for the National Insurance from its employees which includes the company directors.

Using a self-assessment system, the LLC should be able to compute how much corporation tax should be paid. An accountant and an auditor are needed to handle such computations to avoid penalties.

You must register your company and contact your local HM Revenue and Customs Office and inform them about your company and your limited liability. Failure to comply will cost you additional penalty. When you register your company to the Registrar of Companies, they will submit the details of your limited liability to the HMRC, therefore coordinating with the local office is required.

Apart from registering your company and informing your local HMRC, there are other legal requirements that you should comply with to avoid penalties with regard to your limited liabilities. You should display your limited company’s name in your registered office or business establishment. You should also place your company’s name, office address and contact numbers in all the business stationery like business letters, invoices, receipts, cheques, order forms, emails and faxes.

If a company director’s name is included in the letter or he is the one signing the letter, then, all the company director’s names should also be included.

You must send all the registration documents and completed registration forms to the Registrar of Companies. You should receive a Certificate of Incorporation from the Registrar of Companies as proof that your limited company has been registered.

Aside from limited corporations, RTM Companies or Right to Manage Companies and Commonhold Associations should also follow rules of incorporation. RTM companies and Commonhold Associations are under the Commonhold and Leasehold Reform Act 2002. For RTM companies, the leaseholder can transfer the landlord’s responsibility of repairing and maintenance of the building to the RTM company. The company is limited by guarantee and must comply with the RTM Companies Regulation 2009. The name of your company should end with “RTM Company Ltd.” The Communities and Local Government website can be visited to see information and rules regarding RTM company names.

Commonhold can be seen in England and Wales. It is a type of land ownership and the company is limited by guarantee, with its memorandum and articles complying with the Commonhold Regulations of 2009. Information and regulations can be downloaded from the website of the Department for Constitutional Affairs.

Commonhold association can be an alternative to long-term leasing of properties. The name of the association should end with “Commonhold Association Limited”.

Jim F. Roberts has been expertly writing articles for 5 years on a variety of topics of interest. He finally discovered that starting a business requires a good knowledge on the types of company formations like solo ownership, Ltd., LLC, Limited Company and all the requirements in a business start-up.

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A limited company is a company where the liability of the share holders is limited. It is the most popular type of organization in the UK, as well as worldwide. The reason for its popularity is that the company and the owner are treated as two different entities in the eyes of the law. The owner’s personal wealth and assets are totally separate. In case it faces any kind of financial crisis, the property of the owner is safe. In case of bankruptcy, the shareholders are liable to pay only the amount that is unpaid on the shares, which is usually zero.

Limited Company: Types

This type of organization must have the word “limited” as a suffix to its name. It is also liable to pay corporation tax. There are mainly four different types of limited companies:

* Private Company Limited by guarantee

* Private Company Limited by Shares

* Public Limited Company

* Limited Liability Company (LLC)

* Limited Liabilty Partnership (LLP)

New Limited Company Formation

A limited company can be formed very quickly, either by registration directly with Companies House or via online formation agents. These companies are governed by English law (Companies Act 1985, Companies Act 1989, Companies Act 2006). All that you need to form an organization are:

* The intended company name

* Registration application

* Name of the Director

* Name of the Secretary

* Registered address within the UK

* Filing of important documents

The important documents required are:

* Application of registration

* Memorandum of association

* Articles of association

* Forms IN01

Limited Company Registration by Online Agents

This type can be easily registered in the UK from any part of the world via the internet and with the assistance of online company registration agents. These agents provide various services and guidance to set up and run your company. They provide these services at very reasonable costs. You can get your company registered within a few hours once you fulfill all the required formalities.

Obligations in Forming a Limited Company

The obligations that need to be fulfilled include:

* The employees of the company have to pay for national insurance and income tax.

* Annual accounts must be filed within 9 months of the ARD.

* Filing of annual returns is also mandatory with Companies House.

* Annual tax return is also compulsory to be filed with Companies House.

Remember, while choosing an online agent from the multitudes available online, ensure that you choose someone who is credible and has a track record of satisfied customers. With 25 years of experience in this arena, A1 Company Services Limited is one of the most trusted online registration agents with vast experience. To know more about the services offered, visit a1companies.com today.

If you want great tips on limited company formation, as well as tips on how to grow it successfully, you may visit www.A1companies.com.

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