Virtually, every business would require making few hard decisions at some time or another. Converting a sole-trader business or a partnership into a limited company is such serious decision. Forming a new ltd company delivers various benefits to the business and one of such is the limited liability granted on the shareholders and the officers of the company. In contrary to that, when it comes to a non-limited company or a sole trader, personal assets of the shareholders and the officers are at a stake as the liabilities are not limited. Non-limited liability can be a huge risk for any business in the event of a business failure. As long as the company operates legally, the assets of the shareholders and other officers of the company are secured with the structure of a limited company. Nevertheless, despite the benefits, opening a new ltd company is associated with some challenges as mentioned below.
Increased cost for legal and administrative work
This is an obvious challenge you must be able to face when forming a new ltd company. You will need new systems to maintain accounting and records, a whole new set of stationary, different VAT registration procedure, VAT returns and many other things. Having considered all these implementations, the respective business that undergoes structural changes should inform the same to the existing customers. At certain instances, some clients would discontinue their partnerships with your business due to these changes.
It is mandatory to maintain accounts compatible with companies act
One of the most serious things to consider when forming a new ltd company is accounting. After analyzing the tax position of the business carefully (probably with the help of a taxation expert) the company must implement precise accounting strategies that complies with the Companies Act. The requirement for statutory audit, therefore, becomes a requirement for companies that make an annual turnover of £10.2 million.
Accounts should be publicly viewable
Another aspects associated with accounting when it comes to a new ltd company is that they should be ready for public viewing. So, every limited company should be prepared to submit an annual return with a filing fee. Failing to file annual returns will cause penalties on the business; which can be a huge impact on the business depending on the amount of penalty charged.
Profits are subjected for tax
The profits make by limited companies are subjected to tax just like the sole traders or the partnerships. Each and every accounting period, an income tax will be incurred on the profits made. Also, the business should file tax returns without fail every year.
Potential tax complications
When running an unincorporated business, the owners can both introduce and withdraw cash without potential tax complications. However, when it comes to companies, such acts would increase the tax liability.
Although opening a new ltd company is associated with potential challenges, with systematical approach and methodical accounting, these complications can be solved for the betterment of the business.