Choosing the Legal Status for your business

The decision about what legal status to adopt in your business is often in response to a combination of issues: -

• Legal issues
• Accounting (tax) matters
• How you assess 'risk', and your aversion to it
• Where you want to be in the future and what you want to achieve both in the business and in your own life
• A wish to be separate from the business
• A desire to be seen as more credible in the marketplace.

Limited v. Unlimited Liability

As a Sole Trader the Inland Revenue does not distinguish between you (the person)and your business so if the business goes ‘bust’, so do you, hence the expression Unlimited Liability (for all the debts of the business). This means your home and/or other assets may be at risk if your business gets into 'deep water'.

Partnerships have the same problem because partners are ‘jointly and severally liable’ for all the debts of the Partnership.

In order to legally separate yourself from the business you need to create a separate legal entity, in other words a Limited Company. The company exists in its own right and the company's finances are separate from the finances of the owner(s). You would not be liable for the debts incurred by the company unless you have given a Guarantee, to a bank for example. The Company assumes the liability for the debts of the business and thus you acquire Limited Liability.

If you need to know more see our Limited Co. FAQ's on the subject.

Company Formation

To set up a Limited Company, whether to protect a trading name (in which case the Company will remain dormant) or to trade, you should use a reliable Company Formation Agent. UK Enterprise Solutions have created a partnership with Duport Associates Ltd because they provide excellent service to their customers as well as offering plenty of value-for-money options to match your aspirations and requirements. They have a wealth of useful information on the subject. If you already know that you want to set up a Limited Company enter your proposed company name in the box below and Duport will do the rest and guide you through the painless process of forming your own company.

 

It is a wise idea to understand what it means to be a Director of a Limited Company and the Companies House web site has a very readable document on the subject. CLICK HERE to download it.