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What is a Limited Company?

We often find that people become confused with the different entities under which you can trade. A sole trader for example will be one individual trading solely in their own right. A sole trader is responsible for the debts of their business without limitation if the business fails.

Likewise a firm or partnership could be several individuals trading together with joint responsibility for all of the debts of the business.

So what is the attraction of a Limited Company ?  In very simple terms it can be that as an individual you wish to avoid personal liability for the debts of your failing business. If those debts were significant and you were unable to pay them you potentially could be made bankrupt. Forming a Limited Company can provide protection from this.

A Limited Company is a separate legal entity and is legally responsible for its own actions. The finances of a Limited Company are entirely separate from its directors and shareholders. As long as you don’t trade fraudulently or recklessly then if the business were to fail, as a director in the Company you would not be personally responsible for the debts of the Company. Your only loss would be restricted to any money you invested in the business and you may have a responsibility for any bank loans if you have given a personal guarantee to the bank.

To set up a Limited Company you need to register, or incorporate the Company at Companies House. Basic details are required, and you will need a registered office which is the official address of the Company. You will need to create ‘Articles of Association’ which set out the rules for running the Company.

For further assistance or if you would like to talk to us about setting up a Limited Company please contact Danielle Knee.