Are you putting your business (and yourself) at risk with a ‘casual’ attitude to business procedure?
Many small businesses are registering themselves as limited liability companies in an effort to gain the protections that this way of doing business offers. Unfortunately, not all of them are making the fundamental changes in the way they do business that this system requires.
Doing business as a limited company
Forming a limited liability company makes you a director, rather than an owner. You no longer have only yourself to answer to, rather you must base your decisions on what is best for all of the shareholders. If you are the only shareholder, maintaining the status of a limited company can become more difficult, not easier.
What is limited liability?
Limited liability is the ‘corporate shield’ that protects the company’s officers and directors (you) from being held liable for the company’s debts if it fails. As a sole trader, you are personally responsible for all of your business debts. As a director – if you follow the right procedures – the company can go bankrupt whilst you do not.
Is there a down side?
Quite a few. The most obvious is that company resources no longer belong to you. If you ‘borrow’ money from the company account beyond your ‘official’ salary or dividends, you can be hit with a 25% tax bill. Worse still, if the company goes under whilst you owe it this money, you can end up still owing it to the company’s creditors.
So, what do I do?
Well, not to toot my own horn, but you need to talk to your accountant or another financial professional about how best to move money around your business. Quite a lot can be done completely legally and without sacrificing your liability protections, if you take the time to do it in just the right way.
If you have any questions, give me a call on 01924 262133.
Thanks, Paul Harrison