Is a Ltd Co really necessary?

makeyourdaddyproud

Can someone advise me please.

I'm thinking in starting a new business but I am unsure if it will be successful within a year. It is a B2B enterprise but i've been told to set up a limited company rather than sole tradership. If it fails, can I walk away from all the paperwork if I make no money, or do I have to file pointless accounts with zeroes? Do I still have to keep the paperwork for many years afterwards.

I have also been told that many businesses won't deal with you unless you have a limited company?

It just seems a shame that we have all this bureaucracy preventing people from going into business where failure is mainstream.

InsideInsurance

It all depends on what you are doing, what size of business your customers are etc.

Without doubt, in some industries they are perfectly happy dealing with sole traders even if it is in a contractor type relationship. In other industries then larger (namely those with a proper HR or Legal department) wont entertain a sole trader for anything that could possibly be construed as "employment" as it isnt worth their risk.

As a limited company there is additional paperwork that is required and you cannot simply "walk away" if it goes wrong. There are both formal processes to wind up the company and as a Director of a Ltd you hold certainly obligations (and liabilities). Plus if your looking for credit then lenders almost certainly look for personal guarantees or securities from any SME because of the risks.

It isnt really "bureaucracy" as much as what you are doing. A Ltd is a legal entity in its own right. As you personally must submit information about your tax affairs so must the ltd company. The only difference is that as an employee the kind people in HR/ Payroll do it all for you but as a sole trader, director or Ltd you need to do it yourself (or pay someone like a Payroll person (aka an accountant) to do it for you)

Pennywise

makeyourdaddyproud wrote: »

It just seems a shame that we have all this bureaucracy preventing people from going into business where failure is mainstream.

No, that's not the case. You can set up in business very easily and cheaply by being a sole trader with a minimum of fuss.

If that's not suitable for whatever reason, then you can form a limited company, which doesn't have to be a bureaucratic nightmare if you either research it properly yourself (everything you ever need to know is only a few clicks away via Google!), or get an accountant on board to deal with the paperwork for you (doesn't have to be expensive).

Plenty of businesses (sole traders and companies) start up on a shoestring. I'd say that here in the UK, things are a lot less bureaucratic and costly than in many other countries. It's just a matter of respecting and complying with the laws/rules in place. HMRC and Companies House have all the information on their websites and telephone helplines.

If you aren't good with paperwork and record keeping, then you have to factor in to your business plan and costings, paying for administrative, book-keeping and accounting help. If you're confident in dealing with it yourself (plenty do), then get googling.

makeyourdaddyproud

Thanks, it looks as if ST is the best option for me short term. LC is better and more relevant once I am in the fortunate position of employing people.

kaya

I had a business a few years back , I made one product and had one wholesaler so you can't get simpler than that ,things went sour with my wholesaler and they refused to pay £8000 VAT bill I invoiced them for ,had I not been a limited company I wold have been personally liable for the debt to HMRC which my company didn't have the money to cover anyway , as I was a Ltd company I just sent a note explaining my situation to HMRC with a cheque for the remaining balance I had in the company account and closed it down , you can buy a pre registered limited company off the shelf for peanuts and in my case I was thankfull I did

HasBeen_2

E.g: If you sign a shop lease and the business goes bust, as a sole trader you are responsible for the lease debt and you will have the debt. A limited company provides limited liability and the limited company will owe the money - not you. If you have risk of debt, its best to go Ltd.

fishybusiness

Ltd Co not that big a deal from a paperwork point of view.Company returns, wages, corporation tax and personal tax easily handled by any competent accountant.

Claim your expenses, your mileage, and anything else business related, and just run your business.

Make sure you think carefully about signing anything giving direct personal liability, and go and make your money.

CKhalvashi

makeyourdaddyproud wrote: »

Thanks, it looks as if ST is the best option for me short term. LC is better and more relevant once I am in the fortunate position of employing people.

LC is better the minute your outgoings start going through the roof (above what you're comfortable with).

Pre-2006, when I went full-time at it, there were 5 of us (2 directors + 3 employees), so I didn't worry too much about losses, as what was going out was small compared to what was coming in. T/O was between £70-80k most months, and outgoings were £60-70k, so it was manageable on a monthly level, especially as the office cost £10k to run, and everything else was relative to income.

We now employ nearly 300 staff, and have outgoings IRO £1m a month, before I've even thought about dealing with our clients and I certainly wouldn't want personal liability for that.

T/O for us on our last accounts was £64.8m, and profit before accountant involvement (we bought a lot of vans last year, which is why the actual was low) was IRO £4.5m. What that's telling me, bearing in mind that we're expanding at about 30% a year at the moment, is that we can't afford to be without income for more than about 2 months on the reserves we have. Scary, but true, and it's the reason I won't borrow anything from banks (only debt is owed to clients), as the margins at the moment are so tight it's unbelievable.

CK

Prothet_of_Doom

The BEST thing about running a small Ltd Company is the experience of dealing with accounts, tax, NIC, PAYE, Companies house, HMRC, etc.

The Next best thing is the LIMITED liability. Make a mistake, and unless it's intentionally criminal, you can only loose the company, not your house (unless you have secured loans on it, which would be silly)

bris

Problem being you wont get funding without personal guarantees these days, it's not like the old days, creditors don't just give out credit to new limited companies now.

Brassedoff

makeyourdaddyproud wrote: »

Can someone advise me please.

I'm thinking in starting a new business but I am unsure if it will be successful within a year. It is a B2B enterprise but i've been told to set up a limited company rather than sole tradership. If it fails, can I walk away from all the paperwork if I make no money, or do I have to file pointless accounts with zeroes? Do I still have to keep the paperwork for many years afterwards.

I have also been told that many businesses won't deal with you unless you have a limited company?

It just seems a shame that we have all this bureaucracy preventing people from going into business where failure is mainstream.

As others have said, it depends on what you are doing and who you think will be your customer. I get a few enquiries a month and tell them to go and be sole traders until its too big.

Tax wise there's advantage and disadvantages both ways. The paperwork is still just as bad, but a limited company director who runs their business normally without giving guarantees does not generally run the risk of losing the home. A sole trader does, you have no limited liability.

Don't give PG's tell them to debenture your debtor book if they want security. Also make any guarantee time limited to the event, not to the relationship.