Setting Up Your Own Business: Types of Company
Thinking of starting your own company? Have you even began to consider what type of company you would be setting up? And what the financial and logistical repercussions would be? Below is a list of the types of company you can set up to get you thinking of the direction you’re wanting to get into.
Limited by shares
Most limited companies are ‘limited by shares’. This means that the shareholders’ responsibilities for the company’s financial liabilities are limited to the value of shares that they own but haven’t paid for.
Company directors aren’t personally responsible for debts the business can’t pay if it goes wrong, as long as they haven’t broken the law.
A company limited by shares issues 100 shares valued at £1 each when it’s set up. Its 2 shareholders own 50 shares each and have both paid in full for 25 of these.
If the company goes bust, the maximum the shareholders have to pay towards its outstanding bills is £50 - the value of the remaining 25 shares that they’ve each not paid for.
Private company limited by guarantee
Directors or shareholders financially back the organisation up to a specific amount if things go wrong.
Public limited company
The company’s shares are traded publicly on a market, such as the London Stock Exchange.
You can also consider setting up a private unlimited company as an alternative legal structure. Directors or shareholders are liable for all debts if things go wrong.
How to set up a limited company
You must register the company with Companies House and let HM Revenue and Customs (HMRC) know when the company starts business activities.
Every financial year, the company must:
- put together statutory accounts
- send Companies House an annual return
- send HMRC a Company Tax Return
- The company must register for VAT if you expect its takings to be more than £83,000 a year.
If you’re a director of a limited company, you must:
- fill in a Self Assessment tax return every year
- pay tax and National Insurance through the PAYE system if the company pays you a salary
You must register when you go over the threshold, or know that you will. The threshold is based on your VAT taxable turnover - the total of everything sold that isn’t VAT exempt.
You must register for VAT if:
your VAT taxable turnover is more than £83,000 (the ‘threshold’) in a 12 month period
you receive goods in the UK from the EU worth more than £83,000
you expect to go over the threshold in a single 30 day period
There’s no threshold if neither you nor your business is based in the UK. You must register as soon as you supply any goods and services to the UK (or if you expect to in the next 30 days).
You may have to register for VAT if you take over a business that’s already registered.
You must register within 30 days of your business turnover exceeding the threshold. If you register late, you must pay what you owe from when you should have registered.
You may get a penalty depending on how much you owe and how late your registration is.
You can register voluntarily if your business turnover is below £83,000. You must pay HMRC any VATyou owe from the date they register you.
Get an exception
You can apply for a registration ‘exception’ if your taxable turnover goes over the threshold temporarily.
Write to HMRC with evidence showing why you believe your VAT taxable turnover won’t go over the de-registration threshold of £81,000 in the next 12 months.
HMRC will consider your exception and write confirming if you get one. If not, they’ll register you forVAT.
Get An Accountant
You need to get a good accountant. I can't stress this enough.
And a book keeper. Don't do your own books. Get someone else to do your books whilst you are growing your business. They'll also do a much better job than you and probably faster!
An accountant will especially be able to help you in your start up period, but you want one to help you with your tax returns and financial issues.
Ask some other business owners that you know and trust for a recommendation for a good accountant.
Get this sorted as soon as you can.
A builder wouldn't start building a house without working from a plan and you shouldn't start building your business without a business/marketing plan.
This will come in especially helpful if borrowing money from a bank or investors.
If you enjoyed this article, take a look at the following blog posts we have on starting your own business:
- Becoming an Entrepreneur
- Raising Finances for your New Business
- Branding Your New Business
- The Essentials to Starting a New Business
JUST STARTED YOUR OWN BUSINESS?
Feeling swamped, want more time to yourself and an easier way to manage all your contacts? Speak to one of our team to discuss Keap, our smart client management software.