As long as the business is operated legally and within the terms of the Companies Act, directors or shareholders personal assets are not at risk in the event of a winding up or receivership.
Operating as a limited company often gives suppliers and customers a sense of confidence in a business. Larger organisations in particular will prefer not to deal with non-limited businesses
Many of the costs associated with managing and operating a limited company are not much more than with a non-limited business. Accountants and other professional advisers often have conflicting views on when they consider the benefits of being limited to outweigh the advantages of being self-employed.
There is no obligation for a limited company to commence trading within any set time period after its incorporation. This means that the formation of a limited company is one simple and low cost method to protect a business name. Whilst this does not in itself give any rights to use of the business name, many clients incorporate companies in anticipation of future development of new businesses or in order to protect the limited company name of an existing non-limited business for the future. No two limited companies can exist with exactly the same name.
If a limited company becomes insolvent and is wound up only the assets of the Company are used to try to clear its debts. The officers of the company have no personal liabilities, and are not made bankrupt and are then free to incorporate another company. The shareholders are liable only to the extent of any unpaid shares held.
By contrast, if you trade as a partnership or as an individual, the creditors can claim on all your property to satisfy the debts, and if this is insufficient you may be declared bankrupt. An undercharged bankrupt is forbidden to start another business or to become a director of a limited company.
Maximising the Benefits of a Limited Company
Tax Benefits
One of the main focus for small businesses will be the maximising benefits to minimise the Deemed Schedule E payment. This can be done by:
- Ensuring that your company makes pension contributions.
- Ensuring that you claim the maximum possible expenses allowable under legislation.
- Ensuring that capital equipment used in your business is purchased by you and that capital allowances are claimed.
- Ensuring that benefits in kind (insurance, health care etc.) are paid out of the company.
Other considerations are:
- Keep cash in the business as a loan to the business, so that the company receives interest Gross and pays minimal tax on taxable profits. If you keep spare cash in an account in your name you may well pay 40% tax on the interest.
- Ensuring that other income streams are generated by the company and that expenses are allocated to that income, (ie. Partners Salary allocated to the interest income) That way no tax is paid on some income.
- Make investments through the company.
- There are a number of other tax advantages for a limited company. For instance, a company only pays Corporation Tax at 10% to 35% on its profits after deducting all expenses including directors remuneration.
- Often it is possible to reduce the Corporation Tax, with careful planning, by making dividend payments to its shareholders, and by the use of a Company Pension Scheme.
Raising Finance
Continuity of Business
Protection of your Business Name
Name of the Company
Directors and Company Secretary
Registered Office
All companies by law must have a registered office in the country of its incorporation. It is a place where the company’s statutory records are maintained, and is the place where any legal notices are served on the company – Nitram Management Consultants can act as your Zambian Registered Office.
Memorandum and Articles of Association
Company Stationery
Summary
- The company has a legal existence separate from management and its members – the shareholders
- Members’ liability is limited
- The company’s name is protected
- It has flexible borrowing powers
- The company continues despite the death, resignation or bankruptcy of management and members
- The interests and obligations of management are defined
- Appointment, retirement or removal of directors is straightforward
- New shareholders and investors can be easily assimilated
- Employees can acquire shares
- Taxation – sole traders, partners and partnerships pay income tax. Sole traders’ and partners’ income is taxed as the proprietors’ income, regardless of how much profit is retained as working capital and interest on loans to the business is taxed as their income. Partners are liable personally and jointly for partnership tax and if a partner dies, the surviving partners are responsible for partnership tax
- Directors pay income tax and the company pays corporation tax on company profits, and with current rates of tax company profits earned and retained in the business are assessed to corporation tax at lower rates than if income tax were payable on equivalent profits earned by an unincorporated business.
