If you own your own business and are considering making it a limited company, there are several things that you have to take into consideration, not just to create but also for after it has been created. Freelance limited company means that a business has been registered with Companies House and will be subject to corporate tax. One of the most important things to realize is the money made by a limited company does not belong to the owner of the business but to the corporation, although the owner can take loans out from it. The limited company will have to have a name, an address and a director and secretary who are listed with Companies House and an accountant that will present the business’s accounts and documentations to the House.
A limited company’s business, once established, will fall under the direct control of the director whose job it is to look after all aspects of the corporation including the owners, the shareholders and the employees alike. Anyone appointed as a director must take their job very seriously as they are responsible, by law, for the corporations well-being. The secretary of a limited company has also got certain responsibilities under the law, such as ensuring all year end accounts are submitted in a timely fashion. If a company is small, often the job of secretary is undertaken by the director themselves, in which case they must be registered as both director and secretary and thereafter be responsible for both positions.
Once a business has become a limited company, it must comply with and complete all accounts in a set way to ensure that the financial situation of the company can easily be assessed by bankers or investors but perhaps most importantly, the government for taxation purposes. These accounts will include a balance sheet and a profit and loss account. One of the more difficult tasks for an accountant of a limited company is understanding all, the sometimes complicated, tax laws and how they affect the company. A limited company for example, although is liable for corporate tax can, in some instances also be subject to capital gains tax. Of course though, as with any business, limited or not, one of the more difficult tasks for any accountant is dealing with employee wages and knowing what Pay As You Earn (PAYE) payments to subtract.
Whether the owners are the only share-holders or not, dividends from the company can only be issued if the company is in profit but in determining what is profit is also difficult without proper accounting practices. As a director of a limited company, you are of course allowed to take expenses from the company accounts but there are also guidelines for exactly what a director can claim as expenses and those too are subject to audit as they are something that can also affect the overall profit of a company.
Of course, many businesses do become limited companies but none of them would have taken that step lightly, without first understanding all the implications of doing so.