Arthur Franklin

Company formation

There are many reasons why a business might trade as limited company:

• it provides better protection of your trading name
• it is a legal entity (person) separate from its members
• it can give security to a bank with fixed and floating charges over its assets without involving the assets of the shareholders
• its liability is limited to the amount of paid up capital
• it can own and deal in property in its own name
• it can sue and be sued in its own name
• its shares are transferable thus enabling perpetual succession
• it can attract investment in its shares and employees can be rewarded with shares
• employees can be given status as directors without holding any shares
• payments may be made to a company pension scheme

In addition to the above list there is the question of company taxation which is quite different from personal taxation:

• the main rate of corporation tax is 28% and small companies (under £300k) pay 21%
• tax is paid nine months after the end of the accounting period
• working shareholders draw salaries which are taxed under PAYE in the same way as employees
• dividends paid to shareholders whose income does not exceed the basic rate band pay no extra tax
• dividends paid to shareholders whose income exceeds the basic rate band pay additional tax of 25% of the excess
• profits retained within the company are derived from income taxed at corporation tax rates and not personal higher rates

The decision as to whether incorporation of your business would be beneficial is quite complex and the above lists just provide a basis for discussion.

We can provide advice and deal with the formalities on your behalf.