There are two types of limited companies that are of private limited company and public limited company. Private limited company registration with Companies House is relatively easy and less legal administration requirements to satisfy compared to public limited company incorporation. The minimum share capital required of a private limited company is £1 whereas for Public limited company is £50,000.
This article discussed the advantages and disadvantages of private limited company versus sole proprietorship form of business structure for startups.
Limited liability
Private limited company for business is the most popular choice of many new business startups. The main benefit of trading using a limited company is that of it is the company itself that shoulders the liability as opposed the person running the business. This is because the company and the owner of the company are considered a separate legal entity. The owner’s liability is limited to the amount he invested in the share capital of the company and any guarantees he gave when raising finance for the business.
Comparing limited company for business to unincorporated sole trader business, the owner of the business is exposed to unlimited liability. This means that any business debt can be met from the sole trader’s personal wealth if the business fails.
Continuity
Trading as limited company also provides continuity of the business. The ownership of the company can be transferred easily whereas sole trading business normally ceases when the business owner wants to retire or death.
Company Law
The recent changes to Companies Act 2006 have made it even more attractive for sole trading business owners to incorporate their businesses. The requirement to appoint a company secretary for a private limited company is now optional. This means that a single person can setup a limited company by himself. He can be the sole director and also the sole shareholder of the company if he wishes. However, the person must not be an undischarged bankrupt or disqualified by a court from holding a directorship.
Stability
Many financial institutions, banks and suppliers viewed limited company as being a form of more stable business entity compared to sole trader. This is partly because the company accounts, shareholders and directors details are available for public inspection independently at Companies House for a fee.
Administration
The price to pay for having a limited liability for business is that of the director of the company is required to satisfy the legal obligations and deal with the administration of statutory books and records of the company.
Failure to fulfill these legal obligations, the director of the company can be prosecuted and are subject to fines of up to £5000 for each offence.
There are also late filing penalty for delay in filing accounts to Companies House. The late filing penalty from 1 February 2009 for a private limited company is £150 for even just a one day late, £375 for less than 3 months of delay, £750 for less than 6 months late and £1500 for more than 6 months.
Seek professional Accountants
Due to the popularity of private limited companies for business startups in recent years, many accountants can take care of your company legal obligations and administration at reasonably cheap fee.
Today’s accountants offer fixed fee accountancy services to business startups choosing to trade as limited company and their accounting packages include taking care of the company legal obligations and accounting requirements at competitive charge out rate.
Concise Accountancy – Useful information for people starting a business
