“Limited” means that the company’s finances are separate from your own personal money, unlike with the sole trader option.If things goes wrong, you will only lose the money that you have put in the business. Your personal assets are safe.
To take funds from your limited company, you should be an employee of the company and you’d be paid either a salary, or by taking the profits, known as dividends.
Many people starting businesses elect to go down the limited route. It looks more professional and has a lot less risk if you need to buy a lot of equipment or take on expensive premises, such as a shop unit.
You will need to spend more time on paperwork than the sole trader and you’ll need an accountant to keep track of finances.
There are four main types of company:
- Private company limited by shares – members’ liability is limited to the amount unpaid on shares they hold.
- Private company limited by guarantee – members’ liability is limited to the amount they have agreed to contribute to the company’s assets if it is wound up.
- Private unlimited company – there is no limit to the members’ liability.
- Public limited company (PLC) – the company’s shares may be offered for sale to the general public and members’ liability is limited to the amount unpaid on shares held by them.