Although there are many businesses that become limited companies, the decision to do is not made lightly as there are several rules and regulations that apply to limited companies but not to regular businesses. Freelance limited companies are to be under the control of a director who has, by law, certain tasks to perform among them being ensuring that all accounts are properly kept and filed in a timely manner, when they are due. Although a director may take a salary, often they choose to take a combination of salary and shares in the company. The owners are of course share-holders and although in some instances they are the only ones, other people may be invited to become share-holders. Neither the share-holders nor even the owners can remove money from the limited company which is known as a corporation, they can only receive money from the corporation, in the form of dividends by the director and the director can only issue dividends if the company is in profit. There are regulations though, that will allow for the owners of a limited company, to take loans from that company if they wished to. Any limited company must have a nominated secretary but if the company is small, perhaps with a single director, the director may nominate themselves as the secretary. Regardless of whether or not the director is the secretary, the secretary is the one held responsible for ensuring that all accounts are submitted to the correct authorities at the appropriate times, although of course, under the direction of the director when they are two separate people.
The accounts that need to be kept as a limited company may in some instances differ greatly from those kept as an independent business. All limited companies must complete accounting records in the same manner and strict regulations are therefore placed on exactly how those accounts must be kept. This not only enables any bankers or investors to easily understand any company’s accounts, it also ensures that the tax departments can as well. The two main accounting records that have to be kept are the balance sheet and the profits and loss account and both need to take into account wages, PAYE payments and of course any expenses the director may claim. Although it is the director that actually manages the company, what they may claim as expenses is strictly regulated by the relevant tax departments. As a corporation, a limited company is of course subject to corporate tax but if it makes certain purchases, it may also be subject to capital gains tax on properties and artwork.
Many business owners may consider at one time or other as to whether or not they should apply to become a limited company and although that is their own decision to make, no business owner should apply to become a limited company until they have read and understood all the implications it will have. One of the main reasons why a business may become a limited company is so that they can invite investors to become share-holders.