If you’re thinking about creating your own firm, the type of business you choose to set up is important. Should you operate as a sole trader or form a limited company? Turner Little looks at the pros and cons of establishing a limited company?
What is a limited company?
A limited company is a business which is owned by shareholders and run by company directors. A limited company is a legal entity with its own rights and obligations. For example, all profits and losses belong to the company.
If you wish to create a limited company, you need to incorporate your business with Companies House – the UK government’s register for companies. As company formation agents, Turner Little can provide advice on incorporating your venture with Companies House. So why would you want to take this step in order to set up your own enterprise and what are the advantages?
Advantages of a limited company
Setting up a limited company can supply you, as the business’ owner, with a range of benefits which are unavailable to sole traders. The advantages of forming a limited company include:
- Limited liability: Setting up a limited company can lend you a measure of financial protection. As the business’ owner, you won’t personally be liable for any financial losses incurred by the company. Because the firm is a separate entity, legally speaking, it owns all financial assets relating to the business, so it’s liable for any losses incurred.
- Tax efficiencies: As a limited company, you can utilise tax efficiencies. As a result, you can increase your take home pay. Notably, you can pay the majority of your wage as the company director in dividends. With this option, you can manage your own tax liability and potentially reduce your firm’s national insurance costs.
- Prestigious reputation: Forming a limited company can help you appear more professional. This can make you a more attractive partner for bigger ventures, who are looking for reliable business partners. In some sectors, larger firms will not conduct business with sole traders so if you plan to operate in these industries, you may have to set up a limited company.
- Legal protection: Your business’ name serves as the most identifiable part of your company’s brand. Like other aspects of your venture’s intellectual property (IP), it needs to be protected. This is where setting up a limited company can be advantageous; incorporating your business with Companies House automatically ensures that no one else can adopt your business’ name. As experts in this area, Turner Little can advise you on other IP issues such as trademarks.
Disadvantages of a limited company
However, there is a significant drawback to this form of business creation. As your firm’s director, you take on specific legal obligations under the Companies Act 2006 when you form a limited company. The duties of a company director are many and varied; they can include anything from ensuring the business complies with relevant legislation to ensuring it avoids conflicts of interest. For instance, as the director you will be responsible for ensuring the business is run in accordance with its ‘articles of association.’ These are internal rules which determine how the business should be managed.
As the company director, you will also be responsible for filing specific documents e.g. company tax returns with HMRC, annual return and accounts with companies house every year. This is where Turner Little can help. Through our miscellaneous corporate services, you can find the support e.g. company secretarial services, required to ease the administrative burden of forming a limited company.
Turner Little
Turner Little was founded in 1998 and it has since become a well-established UK based professional Company Registration Agent, Registered Bank Intermediaries and Business Consultants, as well as Trust provider.
