Audit and Accountancy

Incorporations

A business can have one of three basic structures or formations. It can be operated as a sole trader, as a partnership or as a limited (incorporated) company. Limited companies are treated under the law as distinct entities in their own right. As such, they can own assets, negotiate business contracts, run up debts and be sued. The owners or directors are allocated shares in the company. They are not personally liable for the whole of the company’s debts, only for the amount outstanding on the shares they own in the company. (The ‘limited’ refers to precisely this limitation of liability.) In the same way that limited companies are structured differently to sole traders and partnerships, so they are taxed differently. A limited company must prepare its accounts in accordance with the requirements of the Companies Act. Depending on the size of the company and its turnover, those accounts might also need to be audited by an independent auditor. Once prepared, the annual accounts must then be filed at Companies House. In return for payment of a small fee, members of the public are allowed to view a limited company’s published accounts and to check on the identity of shareholders. There is no doubt that recent developments have made trading as a limited company more attractive. However, the tax regime applied to limited companies is quite complex, and it is necessary to look beneath the media publicity attached to the nil rate corporation tax band and the absence of NICs on dividends. There can be no substitute for a detailed analysis, and we are able to offer advice and guidance on the advantages and disadvantages of becoming a limited company.


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