If you are thinking of setting up your own private limited company then you are to be congratulated. The responsibility of turning a profit from your own endeavours is a tough ask, so taking on the task shows that you are the type of person who certainly isn’t afraid of a challenge!
But why set up as a limited company? Why not go for the apparently more simple option of operating as a sole trader?
Sole Trader
While operating as a sole trader is generally easier (in terms of administration) and cheaper than setting up a private limited company, it does have a significant downside when it comes to the issue of personal financial liability. If your business fails as a sole trader, you are personally liable for its debts. The worst case scenario of this kind of liability is that you may well become personally bankrupt if your business becomes burdened with sizeable debts.
Limited Company
Unlike operating as a sole trader, setting up a limited company affords you limited protection against business debts. This is because a limited company is regarded as being a separate legal entity.
So, whilst operating as a sole trader might appear to be a simpler option at the beginning, it is clear to see that setting up a limited company is still your best bet in the long term.
But once you decide that setting up a limited company is the right thing to do, how should you actually go about doing it?
Setting Up your Limited Company
The first thing you need to do when setting up a limited company is to register its name with Companies House. This is a relatively simple task which requires you to do nothing more than furnish officials with some specific information and sign and date a number of important documents. If you are looking to form a brand new limited company (rather than purchase a pre-existing name) then you will need to send a Memorandum of Association, Articles of Association and a completed IN01 form to Companies House. A Memorandum of Association details the limited company’s name, registered office and nature of business, and must be signed by the director(s) in front of a witness. The Articles of Association sets out the rules for the running and regulation of the company.
These documents are readily available for download from our Corporate Documents Folder here on the Simpy-Docs website. In fact, we have a wide array of document templates, guidance notes, and other supporting legal forms which can be invaluable when starting up a limited company, so you may well find it very beneficial to have a good look round our pages and folders before you set up your own business empire!