Single Member Companies – Issues


The Companies Act 2006 is the single biggest piece of legislation ever to be passed in the UK. One notable change brought about by the Act was the abolition of the requirement for new company formations to have a company secretary. This in effect means that a single director can now form a company, rather than the longstanding prior requirement for there to be at least two legal entities to form a company: a director and a company secretary.
This is good news for sole traders, who can now continue to trade on their own but do not have the need to appoint a second person to their business in order to enjoy the obvious benefits that come with limited liability. That said, there are increased obligations that come with this benefit, not least the reporting and filing requirements to Companies House – failure to comply with which can result in criminal proceedings.
Role of the Company Secretary
Traditionally, the company secretary was responsible for administrative matters such as completing the annual return, dealing with the appointment and resignation of directors and issuing shares. Companies incorporated prior to the change in the law will continue to have company secretaries, unless they choose to redraft their memorandum and articles of association to remove the requirement. With a single person company, the onus falls on the sole person to undertake all these obligations, which may not be ideal for someone who is not good at administration.
Perception of One Person Companies
Given that there is now no requirement for a second person to be involved in the administration of a small company, it could be that the prestige and apparent trustworthiness that comes from doing business with a limited company is diminished. If a prospective supplier or customer sees on the Companies House website that they are dealing with a single person company, there may be a tendency to think of that person in the same way as they would a sole trader.
Benefits of Becoming a Limited Company
Although it is commonly perceived that the running costs of a limited company are significantly higher than those of an unincorporated business, the reality is that there may not be that much difference. Despite the requirement to pay Corporation Tax, limited companies do, in practice, enjoy a degree of flexibility in tax planning compared with a self-employed person and can be used to reduce the overall tax burden in some cases.
If you are starting up in business or have traded as a sole trader, there could be considerable benefits to incorporating as a limited company, such as protecting your personal assets should the business fail.
If you would like advice on how to structure your business in the way that is most advantageous to you, contact us.

Share this article