Are you looking for a new business idea? Do you want to start your own business? Then, forming a limited company might be an excellent opportunity for you.
A limited company (or “private limited company”) is a separate legal entity with its own rights and obligations. It’s formed by registering with Companies House, which makes a company official. The procedure to set up a limited company is very complicated; it’s also one of the most complex procedures. The administrative and financial duties of running a limited company are quite great compared to those of a sole trader. In this article, we’re going to explain 10 major advantages of setting up a private limited company:
- A limited company is quite a different entity from its owners. From a company accountant to the involvement in contract and tenders, and to the ownership of assets, everything is purely company business and different from the interest of the shareholders of the company.
- One of the greatest advantages to a private limited company is that running such a business can enable you to legally pay less tax compared to that of a sole trader. The profits of a limited company are subject to UK Corporation Tax that is set at 19% at the moment.
- Running your business like a limited company means you will get a reassurance of the limited liability. In case no fraud takes place, your limited liability would not be liable for any economic loss made by the business. Hence, a limited company can hence provide you with additional protection in case things go wrong.
- In a few industries and businesses, setting up limited company can offer you a more professional recognition. In case you are doing business with larger corporations, you may identify that they prefer dealing with limited companies rather than partnerships or sole traders.
- For new business, finding funds can be quite difficult. However, because a private limited company is a different entity, it is easier for the companies to secure business finance compared to a sole trader.
- Once you register a limited company, the name of your company is protected by the law. There is no other corporation that can use the similar name, or anything that seems too identical.
- A limited company can provide several classes of shares. Hence, it means you can easily sell stakes within the company, or transfer shares’ ownership. In case your private limited company has more than one shareholder, you must get an agreement with shareholders outlining the important responsibilities and duties.
- Several people tend to operate as sole traders rather than limited companies due to running costs and start-ups because they are believed to be lower in this case. However, a limited company accountant will charge almost equally for preparing a limited company’s annual accounts and sole trader’s annual accounts.
- Limited companies can easily fund executive pensions of their employees as a legal expense for the business. Also, those pension contributions can be made before the UK corporation tax is deducted.
- In case a shareholder wants to sell his shareholding, wants to retire, or dies, it would be easier to transfer the ownership of the limited company.
So, these are the 10 most significant advantages of setting up limited company.
For more information, contact Tax Accountant | Specialist Limited Company Accountants.
