How Shelf Companies Lost Their Appeal and What to Do Now
Also known as a ready-made company or an off-the-shelf company, a shelf company is a pre-registered business you can buy and customise.
Here at Your Company Formations, we are often asked by sole traders if it is worth going through the formations process and registering their business as a limited company.
When you start out being self-employed as a sole trader, you are becoming one of the millions of SE sole traders currently operating in the UK. However, despite being the most popular way to run a business in the UK as a single entrepreneur, many people choosing this route often fail to realise that there are significantly more advantages to running their business as a registered limited company, or LLC.
Lets take a look at some of the top reasons why forming your own limited company gives you more benefits that simply working as a self-employed sole trader.
By far the easiest way to start a business in the UK is to register with HMRC as self-employed. You will be responsible for paying your own Tax and NI contributions as well as ensuring you keep up to date with your bookkeeping and accounts for your business. You will pay your tax and NI through the self-assessment system at the end of the financial year and you can do this through your personal online tax account that HMRC provides.
Advantages and disadvantages of being self-employed
As a sole trader you can look forward with excitement to the thought that you will no longer be working for a boss that you may or may not particularly get on with. The freedom of being your own boss can be a very tempting prospect, especially if you feel you are stuck in a dead-end job where your skills and talents are being vastly underappreciated. This is a great advantage indeed!
However, you must temper this obvious advantage with the downside of being a sole-trader. You will become responsible for sourcing and completing your own work if you want to get paid! There will be no more rolling into work and having a task handed to you. You must go and get your work all by yourself.
You will also be responsible for all of your own administration, marketing and communications. Being on your own means you will not have the support of a marketing department, admin staff or receptionist to take care of all the essential day to day tasks involved in running a business.
Sole Trader or Limited Company?
While you are thinking about setting yourself up in business, you need to decide whether or not to register as a sole-trader or form your own limited company. While setting up a limited company does involve a more involved formation process, there is help and support available through Your Company Formations services. We are here to assist you with every aspect of forming your own LLC and can make sure that your business meets with all the requirements that Companies House need to register your new company. You can compare our packages to see which option would suit your needs the best.
For example, you may be working on plans to open your business in a year or 18 months time, so may only need to register your business name to secure and protect it in the meantime until you are ready for launch. In this case our Digital Company Pack would be a suitable choice to ensure your chosen business name is protected and cannot be registered by anyone else to trade under.
As a sole trader, you may choose a company name under which to trade, but this doesn’t stop a business rival from coming along and using your company name and good reputation to trade under. It makes sense to want to protect your chosen brand name and failure to do so may see you losing out on all your hard work and possibly having to start over again using a different name.
However, you may already have your plans in place and are ready to jump in with both feet. In this case you may want to choose our Fully Inclusive Company Pack that included everything you need, including a prestigious Central London business address, to make a big impact and impress your clients from day one!
There are advantages and disadvantages to choosing either the self employed and the limited company routes. Lets take a look at some of these in more detail:
Tax incentives
The main advantage of running your business as a registered limited company instead of a sole trader is that you are likely to pay less personal tax as an LLC.
As a limited company, your profits will be subject to UK Corporation Tax, which for the current 2017/18 tax year is set at 19%. The Government have introduced a system where corporation tax will be reduced each year with a target goal of being at 17% by 2020.
By incorporating your business and becoming a company director of a limited company, you can save even more money by drawing a small salary from your business and then taking most of your income through company dividends. This will reduce the amount of National Insurance Contributions or NICs that you pay. Company dividends are treated separately to salaries and are not subject to NIC withdrawals.
For the sole trader, their whole entire income is subject to National Insurance Contribution rules, so this means that you would be paying out more NICs on the same amount of money you would be earning as a LLC, but with limited company status, you get to keep more of your earnings.
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Protecting your Personal Assets
One of the greatest benefits of working with us at Your Company Formations to form your own company and becoming an LLC is the fact that your company will in effect become its own separate entity from yourself. This means that everything you put into your company name, such as your business bank account, machinery, equipment, contracts and tenders as well as any other business assets, will belong entirely to the company rather than to you or any other company shareholders you may have.
This means that should the worst happen and the company fails and goes into liquidation, your personal assets such as your personal bank account, your home, car and other personal belongings will not be accessible funding for company receivers.
A sole trader unfortunately does not have any of this protection. This means that as a sole trader, you and your business are treated as a single entity for administrative purposes. This means that you could lose your own home and money should your business fold to be able to pay off your debts and creditors.
Limited Liability
Forming your company and running your business as a limited company means you have the protections of your ‘limited liability’. As long as no fraud has taken place, you will not be held personally liable for the financial losses of your company. Your company can still be wound up, but you will come out of it with your personal assets still intact.
Professional Business Image
There is little doubt that in business, image is important. If you want your customers and clients to take you seriously, or you want to establish yourself on equal footing amongst your peers in your business sector, then trading as a limited company can give you this standing.
In some cases, big businesses will only ever deal with limited companies. Approaching larger companies as a sole trader to broker deals may mean you will be overlooked in favour of a registered business in the same field. This is why Your Company Formations recommend using our Registered Office Address service to give you an exclusive and highly prestigious London EC1 address for your business.
Financial Support and Funding
Sourcing business funding can be difficult for any business in the current unstable financial climate. However, being a limited company that is a distinct and separate entity from its owners will certainly make things easier for you when compared to a sole trader seeking out business funding.
Brand Name Protection
Once you have registered your business trading name with Companies House, your company name is protected by law. This means that no-one else can use your name to trade under, or anything deemed to be too similar to your name that could be thought to be the same company.
Being a sole trader, there is no guarantee that someone else can begin to trade under your business name. If you have not registered your company and protected your name through the company formations process, then there is nothing you can do about it.
Issuing Shares
As a limited company, you are able to issue various classes of shares. This means you can easily sell shares in the company to raise revenue for further growth and expansion, or transfer ownership of shares to other shareholders. You can be both a company director and sole shareholder, but if you want to have more than one shareholder then you need to set up a Shareholders’ Agreement.
Business Costs
Many new entrepreneurs will choose to start up as sole traders because they believe it to be the cheaper route to running a business with lower costs. However, this may not be the case as you can actually form your own limited company from as little as £5.48 with our Digital Package to secure your business name and protect it from being used by anyone else. So you can see that setting up your own company is really minimal in cost.
The advancements in digital technology has also meant that what was once the remit of your accountant to handle on your behalf, you can now do online fairly simply and easily.
Executive Pensions
Setting up as a limited company means that you can fund your employees’ executive pensions as a legitimate business expense. This is not the case for the self-employed, so this is another added advantage of registering your business as a limited company.
Shareholder Succession
Forming a limited company offers a level of protection for the business that being self employed cannot. For example, should a shareholder in your limited company wishes to retire, or unfortunately dies, it will be straightforward to transfer the ownership of the company ensuring its survival. This isn’t the case with a non-registered business, so should the self employed owner die, the business could fold and cease to exist.
Which business structure should you choose for your new business – limited company, partnership or LLP? This depends on whether you are looking to set up on your own, with a business partner or group of people. If you are unsure about what to do next, do not hesitate to contact us for some free helpful advice and guidance. We are here to help!
