Self Employed or Ltd?
I had to decide when setting up my company whether to go self employed or register a limited company. For those who don’t know, the main differance is to do with liability.
As a sole trader, if the company can’t meet the costs of a liability, then my whole life is liable. Literally anything I own, my car, my house, my TV can all be claimed by bailiffs to repay the companies debt.
With a limited company, this is not always true. The directors have a limited liability. They may owe the company money which can be collected, but the amounts and how it is collected is far more limited.
A director is still personally liable for some risks of the whole company, but those risks are reduced for a lot of cases.
So how does that relate to Games development. Well to be honest it doesn’t.
The risks that you will face as a games developer involve going out of business owing money to banks and or equipment leasing companies. (Sorry if thats a shock, but theres a good chance that your company will never make money, and will go bankrupt).
Those are exactly the sorts of cases where a director can be found to personally liable, if the business went under because of bad management, poor money handling or tax mistakes (tax fraud technically), then you will still be personally liable.
Generally games don’t kill people, and are unlikley to cause accidents (which is why you probably wont need public liability insurance), and those are the cases where a Director would not have to personally pay to settle.
So the main differances between Sole Trader and Limited Company are
1. Sole Traders are wholey and totally peronsally responsible for all company debts / liabilities, Directors aren’t always (but there are priviso’s)
3. Sole Traders have to do a personal tax return as self employed, Directors have to submit an employed persons tax return, and a company tax return, and pay tax twice, once on company profits and once for themselves
5. Directors need to ensure they do full employer tax records, and have to submit yearly company accounts, Sole traders dont
In addition to this, setting up a limited company is reputedly difficult work, and will result in a lot of extra business paperwork and administration.
So am I advocating that you should go self employed?
Limited companies do have their advantages as well, the main being that they are more complex and difficult to setup. Why is that an advantage I hear you cry. Well, anyone you deal with knows that Limited companies are more reputable because you need to be more organised. Secondly they know that they have better legal recompense if you default on a payment, as the company itself has assets and they dont have to chase an individual person. So you are more likely to be trusted for equipment hire, business development loans.
Also there are a number of developers who make money on the side with contracting. A lot of the major firms will only deal with Limited companies when outsourcing contract work. Again because they know they have better legal recompense if something goes wrong.
This means that a limited company will find it easier to get external cotnracts, to get trade cards from stores like Makro or Costco.
Also the aspect of partners comes up often. if you and a freind setup a company and it is a sole trading arrangement then you are in a partnreship. In that case you absolutly must get a partnership agreement. But I would never recommend this, a partnership is almost always the wrong style of company except for certain special cases. In almost all cases a better system is to create a limited company, with the partners being directors.
So in the end, what is the best way to go? Well I decided that the extra overhead of a Limited company was worth the effort. I felt that the benefit of being more genuine, and the possible tax advantages made it worthwhile. whether you will feel the same is up to you.