It’s not unusual to start off your business as a Sole Trader and then decide it’s in your best interests to move to a Limited Company. A lot of business owners do this and recently we’ve had lots of enquiries about this, so we thought we’d write a blog to help you understand the process a little better.
Why switch from a Sole Trader to a Limited Company?
As a Sole Trader all the profits you make are yours to keep, but with this comes responsibility for the finances of the business. Your personal finances are considered to be the same as the business finances, if you owe money through your business you are liable personally. If something goes wrong that’s your responsibility not the responsibility of the company. As your business grows, there is more risk involved and for this reason many people decide it’s best to become a Limited Company.
A Limited Company means that there is less risk for you as a business owner. The money you make belongs to the business and not you personally and any money owed is business debt not personal debt. As a director of a Limited Company you will have additional responsibilities which you wouldn’t have had as a Sole Trader, so it’s important to do your research before making the switch.
Incorporate your business
To become a Limited Company you must incorporate your business with Companies House. You can do this online, if you need support we can help you with this. You can choose to continue alone or have other directors join your business. Each Director will have a share in the business, shares cannot be sold to the general public, only to Director’s of the business. You’ll need to make sure your business name is not already in use, you can do this by searching on Companies House. You can either continue with the business name you had for your Sole Trader business or you can use the opportunity to rebrand and choose something entirely different.
Terms and Conditions
By law you must have set terms and conditions for your business. This helps to prevent any misunderstanding when it comes to your products and services and also gives you some protection. It’s advisable to seek advice from a solicitor when creating any new legal documents.
Inform your existing clients and suppliers
As part of the process you must inform all of your existing clients and suppliers of the change in business structure. You will need to make changes such as opening a new bank account under your new Limited Company name and you will need to make everyone aware of this. If your terms and conditions have changed as part of the process then these will need to be sent out again to everyone who they apply to. Any contracts you have with clients or suppliers will also need to be changed to reflect the business now being a Limited company.
Company Assets
You will need to decide if any of your current company assets as a Sole Trader will be moved across to the Limited Company. This process can be quite complex so be sure to seek advice from your accountant or bookkeeper.
Update Insurance Policies
Be sure to let your insurance providers know about your business structure change. Even though your business is now Limited, as a Director you can be held personally responsible if things happen to go wrong. You may decide to invest in additional insurance such as Directors and Officers insurance to protect you.
If you’re considering becoming a Limited Company and would like some assistance please get in touch.
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