What do you wish you'd known before setting up your Limited Company ❓

Fortune_Smiles

I'm about to set up a limited company with my husband.  We're thinking of having both of us as directors with a 50/50 share split and the registered office as our home address.

We've done quite a bit of research but theoretical knowledge is no match for experience.  So, we were hoping to get some wisdom and insights from those of you who have gone before us 😁

What do you wish you'd known before setting up your limited company? We'd really appreciate your input.

Thank you in advance.

Fortune x

jlfrs01

I set up a consultancy as a Limited Company with my business partner in 2008. He's always handled the financial side of things but I can tell you it's not particularly straightforward. We had to invest in a Sage payroll account and read up on Corporation Tax, VAT returns, National Insurance and the different types of shares plus the rules around Dividend payments. We are both employees of our company and the rules around pensions are different too, then there's the annual cost of an Accountant to file our accounts.
How we chose to pay ourselves also had implications on things like mortgage applications which as for recent payslips and bank statements. We pay ourselves a wage which is just big enough to creep in under the personal tax threshold with a larger Dividend, the lenders don't like that so when I remortgaged a few years ago I had to submit accounts along with a ton of other information.
I'm lucky that my business partner is a bit of a financial wizard, if it were just me then I'd have set myself up as an LLP though it doesn't have the tax advantages or security of a Limited Company.

Fortune_Smiles

jlfrs01 said:

I set up a consultancy as a Limited Company with my business partner in 2008. He's always handled the financial side of things but I can tell you it's not particularly straightforward. We had to invest in a Sage payroll account and read up on Corporation Tax, VAT returns, National Insurance and the different types of shares plus the rules around Dividend payments. We are both employees of our company and the rules around pensions are different too, then there's the annual cost of an Accountant to file our accounts.
How we chose to pay ourselves also had implications on things like mortgage applications which as for recent payslips and bank statements. We pay ourselves a wage which is just big enough to creep in under the personal tax threshold with a larger Dividend, the lenders don't like that so when I remortgaged a few years ago I had to submit accounts along with a ton of other information.
I'm lucky that my business partner is a bit of a financial wizard, if it were just me then I'd have set myself up as an LLP though it doesn't have the tax advantages or security of a Limited Company.

Thank you so much for your response @jlfrs01 .  We'd prefer for hubbie to set up as a sole trader to avoid all of the extra admin but potential clients are insisting on a limited.  We both have income from pensions already and are only looking to replace a small gap in income once Mr F stops working for his employer.  The difference in tax between one or the other is going to be negligible for us.

That's good advice about mortgages.  We are hoping ours will be paid off by the end of the year and any next move would be to downsize but you really never know what the future holds.  The last few years have certainly confirmed that 😆

Thanks again

Fortune x

jlfrs01

No problem Fortune, I hope it's a roaring success! One other thing to note is the bureacracy around setting up a Business Bank Account, even the online ones like Starling. The amount of forms to fill and information required is considerable due to the "Know your customer" rules which came in a couple of years ago.
We had none of that 15 years ago but in providing some consultancy work for an overseas client whose business we were helping to set up here, we encountered a ton of red tape. Of all the banks I contacted, it seemed Virgin Money had the most relaxed rules for opening an account. Banks will also charge for business accounts too (though some are fee-free but few and far between).

Fortune_Smiles

jlfrs01 said:

No problem Fortune, I hope it's a roaring success! One other thing to note is the bureacracy around setting up a Business Bank Account, even the online ones like Starling. The amount of forms to fill and information required is considerable due to the "Know your customer" rules which came in a couple of years ago.
We had none of that 15 years ago but in providing some consultancy work for an overseas client whose business we were helping to set up here, we encountered a ton of red tape. Of all the banks I contacted, it seemed Virgin Money had the most relaxed rules for opening an account. Banks will also charge for business accounts too (though some are fee-free but few and far between).

That's really helpful @jlfrs01 - thank you.

Fortune x

Savvy_Sue

You might want to reconsider the 50/50 split. Gives you no way of resolving a deadlock. Obviously in the early stages you can't imagine such a thing, but it can happen!

Also think about all the worst case scenarios: does your will still fit? Power of attorney (you can, apparently, make a power of BUSINESS attorney, to cover if one or both of you can't function)?

Grumpy_chap

I find all the costs referred to above can easily and affordably be managed by the Accountant.  That's what I do and it makes everything simple:

jlfrs01 said:

I set up a consultancy as a Limited Company with my business partner in 2008. He's always handled the financial side of things but I can tell you it's not particularly straightforward. We had to invest in a Sage payroll account and read up on Corporation Tax, VAT returns, National Insurance and the different types of shares plus the rules around Dividend payments. We are both employees of our company and the rules around pensions are different too, then there's the annual cost of an Accountant to file our accounts.

Another factor I would add is when you buy anything as a business, there are no consumer rights.  In law, your small, start-up business is deemed to have equal bargaining power as the largest corporate giants.  We never had anything where that is an issue but it does crop up in these forums from time to time.

Fortune_Smiles

Savvy_Sue said:

You might want to reconsider the 50/50 split. Gives you no way of resolving a deadlock. Obviously in the early stages you can't imagine such a thing, but it can happen!

Also think about all the worst case scenarios: does your will still fit? Power of attorney (you can, apparently, make a power of BUSINESS attorney, to cover if one or both of you can't function)?

Thanks for the advice @Savvy_Sue.  We've been mulling over the 50/50 split and are not too concerned about it as we're quite good at navigating career and financial decisions as a partnership.  It will probably cause us more problems if one or the other gets the 'final say' 😂 You're right about not having a crystal ball though 😂 So I think we'll get some professional advice on it.

That's good to know about the business power of attorney - I hadn't thought of that and didn't know it was a thing.

Thanks again.

Fortune x

Fortune_Smiles

Grumpy_chap said:

I find all the costs referred to above can easily and affordably be managed by the Accountant.  That's what I do and it makes everything simple:

jlfrs01 said:

I set up a consultancy as a Limited Company with my business partner in 2008. He's always handled the financial side of things but I can tell you it's not particularly straightforward. We had to invest in a Sage payroll account and read up on Corporation Tax, VAT returns, National Insurance and the different types of shares plus the rules around Dividend payments. We are both employees of our company and the rules around pensions are different too, then there's the annual cost of an Accountant to file our accounts.

Another factor I would add is when you buy anything as a business, there are no consumer rights.  In law, your small, start-up business is deemed to have equal bargaining power as the largest corporate giants.  We never had anything where that is an issue but it does crop up in these forums from time to time.

Hello @Grumpy_chap (I love your user name - are you actually my husband? 🤣)

I'm intending to do as much of the admin work as possible myself to keep our costs down.  Our overall aim is to drastically reduce the amount of time Mr F spends working and to plug a small income gap.  Any expenses we incur will have to be met by Mr F working more which defeats the object really.  I have business experience and am doing some further training on the bookkeeping side so I think that we'll be ok.  We'll have an accountant to do the final submissions of course.

I had no idea about the consumer rights point.  Wow!  That's a really important one.

Thank you.

Fortune x

DullGreyGuy

Get a good accountant for the field of business you will be operating in. Make sure your risk appetite and their recommendations are aligned. 

Some people are happy taking a very aggressive stance, I know some where their 1 fee earner consultancy does its annual AGM with its 4 shareholders (fee earner, wife and two teenage kids) in Dubai each year (aka a family holiday). Others take a much more cautious approach... our accountant for example recommends that the share structure should reflect the effort of the parties involved so a 50/50 would only work if husband and wife were equally instrumental in running/success of the business. 

Grumpy_chap

DullGreyGuy said:

1 fee earner consultancy does its annual AGM with its 4 shareholders (fee earner, wife and two teenage kids) in Dubai each year (aka a family holiday). 

This is an interesting one if all the shares are of the same class then all shareholders receive the same dividend payout.  It either precludes taking the majority of salary as dividend or makes for rather well off children who can do as they wish with their own money..