A restricted liability company formation carries a number of substantial benefits to small and medium-sized self employed businesses. A restricted 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 the majority of circumstances and can carry significant tax advantages which vary from year to year

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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 will need to have formally appointed company officers at all times. A private limited company will need to have one or more director, the company articles of association may require multiple, and each limited liability company will need to have one or more company secretary. While a manager can be the company secretary a sole director cannot.

Limited Liability Company Formation

Starting a restricted liability company in the UK is not complicated, company formation requiring both Company House forms, 10 and 12, and the submission of a memorandum and articles of association to accomplish the company formation and registration.

Company House Form 10 provides information on the very first directors and intended situation of the registered office. 買現成公司 A title check must be carried out with Company House to guarantee the proposed name is available and suitable and the proposed limited liability company name entered on form 10 with limited as the final word. Also check addresses and post codes with Royal Mail to steer clear of the company formation registration being rejected. Company House form 10 must be signed by either by or on behalf of the subscribers to the memorandum Of association.

Company House Form 12 is a legal declaration that the limited liability company formation details are true and can be signed with a solicitor engaged in the limited liability company formation or 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 company name with information on the subscribers to the Memorandum of Association witnessed.

Table A is a standard format of a set of Articles of Association, a statutory document that governs the interior affairs of the limited liability company and it is recommended that Table A, Articles of Association is adopted in its entirety.

Following a final check to make certain accuracy submit all 4 documents to Company Home with the company registration fee and the company formation is complete.

Company Formation and Corporation Tax Advantages

Sole traders pay income tax while a restricted liability company pays corporation tax which really is a tax payable on the company net profit. The taxation advantages and disadvantages change from year to year as government policy in relation to tax rates and allowances change. Ahead of 5 April 2006 there clearly was a substantial tax advantage in a company formation as the very first £10,000 of taxable profit made by a restricted liability company was zero compared to being self employed where the conventional tax allowance being an individual might 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 level and expected amount of net profit. Generally self employed businessman paying all his tax at the reduced income rate of 22% wouldn’t gain a significant tax advantage, while anyone paying the personal tax rate of 40% would show significant tax advantages set alongside the corporation tax rate of 19%.

Features of a Limited Liability Company

A sole trader receives no protection from the business liabilities should the business come across financial problems whereas the liability of the shareholders in a restricted liability company is limited by the total amount subscribed for that shareholding. Generally limited liability becomes less clear in reality. Banks and credit institutions often require directors of a small and newly formed limited liability company to offer personal guarantees against loans and credit.

In addition directors should take note when starting a restricted liability company that will that company come across financial difficulties and become insolvent the directors themselves might be financially liable for almost any debts incurred if the company continues to trade following the directors became aware the company was insolvent. For this reason administrators of companies that go into liquidation often immediately cease trading to avoid themselves as administrators being held liable for almost any subsequent debts being incurred.

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