Limited Company Name Change by Special Resolution Explained!
Unlock the process of changing your limited company name by special resolution and essential legal considerations.
Forming a Limited Company is a popular and common way to set up and correctly register your business with Companies House and HMRC. Doing this means that your business is officially recognised as an entity in its own right, and completely separates your personal financial affairs from that of your company.
There are lots of benefits to forming your own Limited Company that you don’t get should you choose to remain as self-employed as a sole trader. Whether you choose to register your business as a for-profit company that is limited by shares, or alternatively you choose to register as a non-profit that is limited by guarantee, there are certain advantages you can gain that are not open to a sole trader of a self-employed worker on a contract.
Lets take a look at at the sort of benefits and advantages you can access through your Limited Company and how they compare to being a sole trader.
What are the advantages of being a Limited Company?
Firstly, depending on what business sector or industry you are operating in, trading as a fully registered limited company can give your business a more professional status. If you want to form trade partnerships or are seeking B2B clients, then being registered as a limited company can make you look more trustworthy in your potential new clients or business partners eyes. They are more likely to do business with you because you have made the effort to register yourself as a bona fide business that it legitimate and can be trusted.
Building trust
The most important element of building a successful business is trust. Having trust in a company is crucial to your existence. If you cannot gain trust, then no-one will buy from you, or hire your services. If you are a new company with no proven track record or customer feedback to rely on, then forming your own limited company can help to prove that you are serious business and are doing the right thing.
Having trust in a new company largely boils down the perception of that business. People know that incorporated companies are more strongly monitored due to their stricter accounting and reporting requirements. A registered company has more rigorously applied statutory compliance requirements placed upon them. The added fact that their company records and accounts are freely viewable on public display for the inspection of any other businesses and individuals can also help to build up trust.
Having this level of corporate transparency can help your company a lot, especially if you are seeking to attract new business partners or investors. Securing finance to help grow and expand your business further can become a lot easier as you will be able to access low-rate business loans at much more favourable rates than traditional loans.
Being a registered company also means that you are able to play on a level playing field with other, much larger companies within your business sector.
Minimising your personal liability
There is no denying that one of the biggest advantages of forming a limited company is the limited liability protection it offers to you. What this basically means is that should anything untoward happen to your business, your own personal assets are protected.
Your registered company is recognised as being an entity in its own right, so will bear the responsibility of its own financial decisions and the consequences should it incur a debt or loss, or have a legal claim made against it. Your own personal money and other assets will remain protected, so you won’t have to use your own personal money or sell off any of your own personal property or belongings to pay off a debt that the company owes.
The same limited liability extends to cover and protect anyone else that may be involved with the company, such as directors and shareholders or guarantors. So for example, should the company need to fold, the shareholders will only need to pay out to the level of the value of the shares they own in the business.
Lets say that your company gets into financial difficulty and you know that the company will not be able to pay off the debt. As a shareholder you will only need to pay the nominal value of your unpaid shares that you hold. This could be as low as £1.00 should you only hold one share valued at £1.00. Lets assume you held fifty shares at £1.00 each, then you would be required to contribute just £50.00 towards the company debt. If a company becomes insolvent, it is the business itself which is declared bankrupt, not the shareholders or directors that run the company.
There is no such limited liability protection in place for a sole trader. Should you choose not to form your own limited company, and instead remain as a sole trader, if your business runs into difficulties then you have no legal separation from your business. In the eyes of the law you and your business are seen as one thing. This means that any debts run up by your business can be claimed back using your own personal money and assets. This could include your personal savings, your home, your car etc. These can all be legally seized and sold off to help pay off your business creditors.
Should you plan on investing a large amount of time, money and effort to provide products or services that could risk receiving a liability claim, then it would be wise to form your own limited company for your own protection.
You can also split your income by issuing shares to your life partner and your own family. This allows you to divide up your business profits and issue dividends to your spouse of children and take advantage of their own personal allowance, as well as the £2,000 tax-free dividend allowance. This can be a very useful move should you be the main wage earner in your family, or you are helping to financially support your children through college or university.
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Tax planning
You only need to look at the different tax rates applied to businesses to see an obvious tax advantage of becoming a limited company. As a sole trader, you will be liable to pay between 20 to 45% Income Tax on your profits. However, as a limited company you will only need to pay 19% Corporation tax on your company profits until 2020, when the rate is expected to drop even lower to 18%.
Thinking ahead, you will want to invest further into your future business growth. As a sole trader you would be investing your own money back into your business, but you will have already paid tax on your personal money that you will be re-investing back into your business.
With a limited company, rather than taking out all of your available profits each year and then having to pay personal tax on top of corporation tax, instead you can choose to leave your surplus profit in the business to use for your future growth. Your business will need to have some capital invested into it if you plan to grow and expand, as well as cover your operational costs. By not taking out your surplus profits as income and leaving it in your company, you will not pay personal income tax on it.
You can also defer drawing your personal income from your profits until a later year when a lower tax rate applies. This would work in your favour should withdrawing all of your profits would mean taking your income into a higher Income Tax or Dividend Tax bracket.
Lower your personal tax
When you work as a sole trader, your profits after expenses are classed as your income and you will need to pay Income Tax and National Insurance Contributions. However, by setting yourself up as a Limited Company, you can choose to take your wages as a combination of salary and dividends. What this means is that you can reduce both your Income Tax and NIC payments by keeping your directors salary below the lower profits level for NIC payments. This means you won’t have to pay any Income Tax or Class 4 NIC payments on your directors salary.
You can then take the rest of your wages in company dividends. Dividends are paid out from your profits left over after you have paid your Corporation Tax. You can take up to £2,000 in dividend payments from April 2018 without having to pay personal tax on that payment. Taking anything higher than this will mean you will have to pay a dividend tax, but you will find the rate to be lower than what you would pay through income tax.
So you can see how you can save money off your tax bill every year by running your business as a limited company rather than continuing on as a sole trader.
Business legacy
When you build up a successful business as a sole trader, there is always the risk that the company will no longer be able to operate should anything happen to you. What we are talking about here is if you should be involved in a life-changing accident that prevents you from carrying on working, or heaven forbid, you should die.
Setting up a limited company means that you will be building an independent company that is real and alive in its own sense. This means that your business will be able to survive you. A company can have a perpetual succession of owners and directors that survives long after the original founders are gone. You can choose to transfer your business to anyone else at any time, so should you plan to retire, there is no need for the business to fold for this to happen.
Company Pensions
Having a limited company means you have the opportunity to invest pre-tax trading income into a company pension scheme. This is better than withdrawing your own income to invest in a personal pension where your money has already been subjected to business and personal tax.
Disadvantages of forming a Limited Company
Reading all of the above information may certainly paint a fantastically positive picture of why you should form your own company. However, there are some negatives that you need to consider before you decide to go ahead and form a limited company. Lets take a look at the main disadvantages, after which you may decide don’t outweigh the positives to be gained from forming your own company.
Costs of forming your own company
It is quite surprising how many people think that it is expensive to set up your own company. In fact, forming your own company can be a relatively quick and painless procedure that isn’t hard on your pocket or wallet. Using a company formations expert such as Your Company Formations means that you get a service that makes everything simple for you. You can trust us to do all the hard work for you and include extra support and services that you would pay a lot for anywhere else.
Company Accounting
While it is true that running a limited company will involve having more complex accounts to deal with, they are not as scary as you may think. You will have more reporting to do and will need to provide a complete set of year end accounts, and yes, these can take much longer to produce and need more in-depth detail to meet your compliance needs. However, there is plenty of help available to make this much easier for you by using an accountancy service that specialise in helping limited companies. This is a sensible move because you can trust your accountant to do a good job while you focus your free time on the growth of your business.
Dilution of ownership
Probably the biggest worry that a business owner has about forming a limited company is the loss of overall power and ownership they would need to take. Having directors and shareholders means you need to take their ideas, wishes and opinions into consideration over the direction that the company takes.
The more shares you sell, the more the company will be diluted, which can cause internal disputes and squabbles between directors and shareholders that will drain your time and energy trying to resolve. There is also the risk that your company could face a takeover from another company as shares can be taken up by other companies as well as individuals.
On the whole, you may consider the disadvantages pretty minor compared to the positives you can gain from forming your own company.
Why not talk to one of our expert formations team members to discuss your options and find out if forming a limited company is right for you.
Further reading:
Important Tax Changes for 2018 to be Aware Of
Do I Need an Accountant for my Business Taxes?
