Brief Guide to Incorporating Your Business

Incorporating your business is a complex procedure and should always be done with the advice of a solicitor or an accountant. However, it is not so tricky that it has stopped nearly two million firms becoming private limited companies in the UK.

Getting started

All you need is a name, an address and enough money to cover the various fees. For £20 (£50 if you want a same-day service), Companies House (http://www.companieshouse.gov.uk) will register your company. You will be offered guidance on filling in forms and choosing a name. But you won’t be given help with the smaller details of completing the paperwork, which is time consuming and complicated. (This is where professional assistance is usually necessary).

Alternatively, you can enlist the help of a company formations service, such as National Business Register (http://www.anewbusiness.co.uk), Formations House (http://www.formationshouse.com) or Westbury (http://www.westbury.co.uk), which charge a little more than Companies House but allow you to register your business quite simply over the internet (though you may have to provide documents by post, slowing down the process).

Most of these organisations enable you to check if your chosen company name is available (or not if some other firm is already using the name). You can also buy a readymade company for about £150. This is a quick and easy method, but it limits your choice of name.

Pros

The main advantages are all about money. Firstly, as the director of your own private company, you can pay your own salary.

And for the smallest businesses there is a tax advantage: firms that make an annual profit of £10,000 or less are not liable for corporation tax. There is marginal relief on profits between £10,001 and £50,000. The Inland Revenue’s website (http://www.hmrc.gov.uk) has a calculator to help you work out your business’s marginal relief.

In the event of a private company being wound up, its liabilities are limited to the value of its assets. In the case of a limited partnership, each general member is liable only for the amount he or she invests in the company. With a limited liability partnership, it is the company and not the individual members that is liable for the business’s debts and obligations.

You will find that your business is easier to sell once it becomes incorporated. Investors and buyers prefer private companies because their accounts are more detailed and better maintained.

Cons

Paperwork and red tape are the major drawbacks of incorporating. There are annual accounts to submit, a corporation tax return (possibly), a PAYE salary scheme to set up and run, and your own Self-Assessment tax return to enter.

Your accounts must be prepared to the extremely high standards demanded by Companies House, to which you must also provide detailed information about your company’s business. Information such as turnover, profit and salaries paid to you and your fellow directors must be available to customers and suppliers.