Limited liability company formation carries a number of substantial benefits for small and medium-sized self-employed businesses. Limited company formation effectively creates a new corporate body distinct from the owners of the business, shareholders. This protects those owners from unlimited personal liabilities in the majority of circumstances and can offer significant tax advantages which vary from year to year. Incorporation does carry additional responsibilities to being self-employed. Company formation requires the submission of 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 Inland Revenue. Every limited liability company must have formally appointed company officers at all times. A private limited company must have at least one director. The company's articles of association may require more than one. Each limited liability company must have at least one company secretary. While a director can be the company secretary a sole director cannot.
Limited Liability Company Formation
Starting a limited liability company in the UK is not complicated. Company formation requires two Company House forms, 10 and 12, and the submission of a memorandum and articles of association to complete the company formation and registration. Company House Form 10 provides details of the first directors and the location of the registered office. A name check should 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 last word. In order to avoid Company Formation registration being rejected, check addresses and post codes with Royal Mail as well. Company House form 10 must be signed 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 by 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. It also states the company name with details of the subscribers to the Memorandum of Association witnessed. Table A is a standard format for a set of Articles of Association. A limited liability company's internal affairs are governed by this statutory document. It is recommended that Table A, Articles of Association, be adopted in its entirety. Following a final check to ensure accuracy submit all 4 documents to Company House with the Company Registration fee and the company formation is complete.
Company Formation and Corporation Tax Advantages
Sole traders pay income tax while a limited liability company pays corporation tax which is a tax payable on the company's net profit. The taxation advantages and disadvantages change from year to year as government policy in relation to tax rates and allowances changes. Prior to 5 April 2006 there was a considerable tax advantage in a company formation as the first £10,000 of taxable profit made by a limited liability company was zero compared to being self employed where the normal tax allowance as an individual might be £4,895 and 8% national insurance contributions also being charged on net self employed profits.
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