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How to Set up an LLC

Starting out in business can be an exciting but terrifying time – you’ll need to take calculated risks but not ones that could put your personal assets at risk if the worst should happen. Setting up a limited liability company (LLC) could be the way forward.

Advantages of setting up an LLC

There are many advantages to setting up a limited liability company, here are some of the main ones:

  • Limited risk – shareholders have limited or capped liability for the debts of the business. This gives you more freedom to take those calculated risks without the risk of losing your personal assets if things don’t go according to plan.If, on the other hand, you are a sole trader or a partnership you may have unlimited personal liability which means you could potentially lose everything, including your house.
  • Identity – the business will have its own legal identity, meaning third parties deal with the ‘company’ as opposed to individuals and shareholders. This not only means the company can outlive its owners, but over time it can have a succession directors and shareholders if necessary. And this can offer a better feeling of job security for employees than other structures.
  • Simple set-up – setting up an LLC is no longer a matter of waiting weeks while Companies House processes the paperwork as the whole thing can now be done online in a couple of hours.
  • Tax benefits – whereas sole traders and partnerships pay income tax, companies pay Corporation Tax, which is usually set at a lower rate. A company can also pay dividends to its shareholders and so you can choose the most cost-effective mix of salary and dividends.
    Similarly, the company can make pension contributions for employees, in which case it can gain Corporation Tax relief against these contributions. Always take professional tax advice before choosing which route to go down.
  • Entry and exit strategy – an LLC can be set up even if it’s not yet trading, which can be a good option if you’ve a business idea you want to name and register before you have the capital to set it up. And registering the business as an LLC can also make it easier to sell on in the future. You may also be able to claim entrepreneur’s relief against capital gains tax when you come to sell up.

How to set up an LLC

If this sounds like a good fit for your business, you’ll want to know how to set up as an LLC. Here’s how to do just that in two simple steps…

  • Choose a name – once you’ve got your business plan in place, it’s time to think of a company name, and there are a few ground rules you’ll need to consider:
    • The name can’t be too similar to or the same as another company name.
    • It can’t be offensive or contain a sensitive word or expression unless permission is given.
    • It mustn’t suggest a link to any government or local authority.
    • You can find out more on company names at UK.
  • Form the company – With the name all sorted, it’s time to set up and register it. To do this you’ll need an address, at least one director, at least one shareholder, and details of the company’s shares and the rights attached to them, also known as a ‘statement of capital’.Furthermore, you’ll need the agreement of all the initial shareholders to set up the company, this is known as a ‘memorandum of association’, and written rules of how the company is run, known as ‘articles of association’.With all this in place, you can then register online with Companies House and you’ll need to register for Corporation Tax within three months of starting up.

With this all sorted, it’s advisable to appoint a qualified accountant or solicitor who understands the intricacies of HMRC and PAYE to look after the books and the payroll. Once that’s in place, it’s over to you to make a success of things. Good luck!

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