Legal considerations when setting up a business (Part 2)
If you are considering setting up a business there are numerous options about the vehicle through which you can trade.
To make an informed decision about the type of vehicle that would work best for you, you need to be aware of the legal responsibilities and obligations that each will impose on you.
In the second of two articles on this subject, Mark Parnall, director at Parnalls in Launceston explains what you need to think about if considering setting up as a limited company.
To view the first article – which considers operating as a sole trader or through a partnership – please click here https://bit.ly/2vV0BuK
Limited liability companies
A limited liability company is viewed in law as being separate from the people who own and manage it, which means that in most cases it is the company, not you personally, who will owe any business debts and be chased for them if they are not paid. If the company fails, the directors’ liability will usually be limited to the value of your initial investment – unless you have done something seriously wrong, such as behaving dishonestly or trading when you knew or ought to have known you were insolvent.
Trading through a company is, however, more complicated than using other business vehicles because of the need for more agreements to govern how the company will operate, restrictions on your ability to make decisions without running them past other people involved in the company first, and significant financial and general reporting requirements. Businesses who want to trade as a company need to register with Companies House and submit accounts for scrutiny every year. Failure to submit accounts on time and pay any tax due can result in significant financial penalties.
A limited liability company has shareholders, who may or may not also be directors. It is possible to be the sole director and shareholder of a limited liability company or to be one of many shareholders and directors, depending on how the business is structured. The ease with which decisions can be made will depend on how many people need to be involved in the decision-making process.
Documents required for a limited company
When you register a company with Companies House, you have to provide a memorandum of association which is signed by all shareholders agreeing to form the company, together with articles of association which provide the written rules about how the company is to be run, as agreed by the directors, the shareholders and the company secretary. There is also likely to be a shareholders’ agreement, which deals with ownership of the shares, the way the company is managed and run and the relationship between the shareholders. There are important differences between the documents, so it is prudent to take legal advice on the contents of each to ensure that you set up your business in the way that is most appropriate for your specific needs.
A limited liability company is required to pay corporation tax. When you form your company, you will need to set your accounting period for the purpose of paying this tax (an accounting period cannot be longer than 12 months). The first set of accounts are due 21 months after the date you registered with Companies House and annual accounts are due 9 months after your company’s financial year ends. It is possible to change your company’s year-end for tax purposes by shortening it as many times as you like and lengthening it to a maximum of 18 months. For example, there may be cashflow advantages to change the dates when tax is payable if your business is seasonal. If you are a retailer wanting to secure finance, you may want to end the year with the strongest set of accounts possible, so after Christmas may be the best time.
Preparing for the future
Whether you decide to trade through a limited company, or some other vehicle, you need to think about what you want to happen to the business in the future should you wish to leave or retire or perhaps sell it on as a going concern. To maximise the value of your business, you need to make sure it is in good shape and it is important to start as you mean to go on. Choose investors wisely, file accounts on time if you need to, and always conduct your business with an eye on an eventual sale. This will make the process of stepping away from things much easier when the time comes.
If you are thinking about setting up a business, please call Mark Parnall on 01566 772375 or email firstname.lastname@example.org
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.
Has your personal information been shared without your permission?
Planning your escape to the country, what you need to consider – part 2
Government consultation on new national model for shared ownership
Choosing a partnership structure
Planning for what happens when you die by Deborah Adams
Changes to legislation could offer protection for tenants in the private rental sector
Move to the country - Part One
The risks of DIY probate
Will your septic tank still be legal in January?
The death knell for ‘kiss and tell’?
Making a will when you retire
Selling your property at auction
Not looking so good - your guide to compensation for botched non-surgical cosmetic procedures
New threshold of seriousness in defamation proceedings
Legal considerations when building a granny annex
Choosing the right person for your power of attorney
Formal Interviews - Do you need legal representation?
Privacy rights and aerial images
Trustees’ duty to give information to beneficiaries
Five problems with a leasehold property
Taking your first commercial lease
Is your organisation protected from employee social media legal risk?
Have you been targeted by negative social media posts?
Farmers be alert when being inspected
Help for House Sellers?
Don’t let your digital assets end up in a digital grave
Valuing an estate for probate
Development proposals and your local authority search
What can you do if your child is injured in a serious accident
NetRights welcomes new protection for social media users
SHOULD I GET A LAWYER FOR A SPEEDING OFFENCE?
Supreme Court recognises that social media is a “casual medium” in libel battle
Choosing the best conveyancer who is right for you
Making a will after a second or subsequent marriage
Option or promotion agreement – which is best for landowners?
Anonymous pub and restaurant online reviews leave a bad taste
Have you had an accident involving a horse?
Help to Buy – beware of some cracks in the structure
Understanding Lasting Powers of Attorney
Changes to Energy Performance Certificate for Landlords
Had a cycling accident? Your route to obtaining compensation
New year, new home: tips to sell your home in the New Year
Tax Planning for your inheritance
Hearing loss: when your employer may be liable
Buying a home for your retirement, five things you need to consider
Farmers plan to diversify after Brexit
Ministers press ahead with probate fee shake-up - reports BBC News
Botched dental treatment? You may be entitled to compensation
Why a Health and Welfare Power of Attorney is a good idea
Will the new charge on building developments in Cornwall affect you?
Energy Performance Certificates – Do They Matter?
HMRC Challenging Stamp Duty Land Tax Payments
Ben Mitchell qualifies as a solicitor
The potential implications of Brexit on employment law
Appointing a guardian for your children
Houses in multiple occupation – new rules from October 2018
New Agriculture Bill published
Will Brexit affect my pension?
Dreaming of a holiday home? Sort out the legals before putting your feet up
Lasting Power of Attorney by Deborah Adams
Settled status after Brexit by Alexis Hager
How to choose an executor to administer your estate when you die
How overage agreements can boost profits from your land
Top tips for first-time buyers
How Could Brexit Affect My Farm?
Wills & Succession in Spain by Deborah Adams
Brexit – an international and local view by Alexis Hager, Litigation
Capital gains tax - important facts for non-residents of the UK
Buying a home: the importance of making sure the seller is entitled to sell
Changing a will after someone has died: it is possible and it could save you money
Your responsibilities when you have people working in your home
Sad passing of Battle of Britain pilot who served with Parnall family member
Considerations when buying a heritage property
Disciplinary proceedings at work: guide for employers
Employers should have a disciplinary process in place, but just following this may not be enough to avoid falling foul of the law and exposing yourself to the risk of an employment tribunal claim.