Benefits of a Limited Company
A limited company tends to be correlated to sole traders by a few, but you will be surprised that they are two different types of ownership. A limited company can be the largest business structure in the UK, with more than 100 million employees.
However, are there tax benefits in a Limited company? Does a limited company mean avoiding corporation tax liability? Are the authorities not after the owner’s personal assets anymore? Is it a separate legal entity? Do you still need National insurance contributions? How does a Limited Company pension scheme work? Is there a limited company director?
Get Bolton accountant for SME! Reach out NOW!
If you have these questions in your mind, then it is certain that you must keep on reading to find out and become knowledgeable in running a Limited company.
What is the main reason why a Limited holds numerous benefits both for the profession and for the finances?
For starters, these benefits surpass the advantages offered by a sole trader or contractor working under a separate umbrella business.
That is why in this article, you may find out the answer by simply weighing down all the contributive factors that will help you decide about the suitability of a Limited Company in your business.
The Advantages of a Limited company
In the United Kingdom, the second most commonly used method for starting an enterprise is as a limited liability firm. In 2018, the company had around 4.7 million shareholders. It offers enormous advantages compared with disadvantages of managing a Limited Company. It is important to learn how different business models affect business ideas.
1. Separate legal identity
Unlike sole traders, limited companies can be considered individuals in themselves legally, making their personal assets remain theirs because they are not personally liable for any business debts.
Those who control the board and its shareholders have their own distinct identities. The limited company can enter into contracts under its name and take out debts in its name rather than the director’s name.
This also applies to the owner because, in some situations, the owner cannot assume the entire liability for the organisation or its activities. There is no obligation to pay any part of the amount owed to them or for the security.
2. Tax and Planning
We all know that we have to pay taxes such as personal tax liabilities, capital gains tax, and corporation tax relief. However, forming the limited companies may mean you also have the tax advantages and reflects only 19% Corporation tax in certain circumstances. This means you only get to pay less tax, making Limited Company tax efficient.
Moreover, the taxation also allows businesses to keep excess revenue in the business to cover the business’s future costs and growth costs rather than having the profits withdrawn.
3. Splitting Income
Limited companies issue shares and can be given to your loved ones, including your husband. It is logical to do so to reduce your income.
If you give a dividend to your kids or spouse, they have an exemption from personal taxation, basic income tax, and a share allowance of up to £2,000. Ideally, you will be able to support your child financially and provide financial assistance for the child.
4. Better Reputation
In limited companies, the benefits include gaining a reputation and increasing a reputation. This is because these structures give you an impression of professionalism, thus making your customers trust your company.
It’s worth noting that large firms, particularly within financial sectors, prefer working with limited firms rather than unincorporated ones. The preference for limited companies is because they are strictly controlled and have reporting requirements that sole traders do not meet.
5. Setting Up a Dormant Company is Possible
If your brand name is perfect but has yet to begin trading, you can create a dormant company. Your business does not have significant accounting activities throughout the tax year.
This protects a company name for a long time and allows you time to raise capital and develop it. It is easier for administrators and business owners in dormant companies than for active ones, although they still adhere mainly to formalities.
Disadvantages of a Limited Company Business
Despite the numerous benefits a Limited Company can give you, it is inevitable to find a downside. However, it is okay because you get to understand what you’re dealing with, including the potential drawback that you may face.
How do limited firms cope with the disadvantages of limited companies? Find out more by reading below.
1. Operating as a sole trader business
Starting a small business is a straightforward task. The company does not have a registration requirement, so this can be done quickly and efficiently!
However, the distinction between a business or sole traders remains the same in a legal sense. If a company is not meeting its obligation to pay its bills, it may put your earnings at risk. This helps remove money for personal purposes, but it doesn’t require any complicated procedures to do this.
Alternatively, you may choose to do business on a personal or business basis and not have it published in public because of the fact.
2. Limited Companies Must Be Incorporated at Companies House
Unlike an individual corporation, it also requires registration at Companies House to operate. These actions are quite challenging and are sometimes charged.
To relieve stress on this process, companies exist that specialise in establishing limited companies.” Using these services is a good way to relieve your stress and focus on something more constructive!
3. Privacy and Public Records
As we know, companies have their legal department, which is based at Companies House. This means the Company’s annual reports and records of directors and shareholders become public records. So you can find them anywhere.
The privacy of the Limited Companies has been reduced. Despite their existence, the private sector does not face such issues.
4. Split of Ownership
Limited companies usually have shareholders. Each shareholder must decide on the company’s operations. The more shareholders, the more control your business has and the less influence on its business operations.
Depending on how you plan your business, you could end up with some bad contracts.