There can be numerous reasons that someone decides to form a Limited Company. Here, we summarise 5 of them:
Protected liability for owners
By forming a limited company the owners are protected should anything go wrong. The company itself is considered to be a separate legal entity, unlike a sole trader where the individual that runs the company is liable for any debts or legal actions taken against the business. Your liability as a Director is limited to your shareholding or guarantee amount – dependent on what type of company you form. This can be particularly important in industries prone to health and safety risks, a prime example of this being the construction industry.
May be more tax efficient to draw dividends than being a sole trader
Tax rules in the UK change regularly so it is important to take advice on which business type is best for you. Nevertheless it can often be more tax efficient to run a limited company instead of a sole trader business when your profits and turnover exceed a certain amount.
Recognised business format – professional, reputable and sometimes expected
Although many businesses trade without forming a company for many years without issue and with no detrimental effect on their reputation, it is widely regarded that having a limited status can have a positive effect on the way potential customers and suppliers view you. It is considered by some to be more professional than acting as a sole trader. You may find that forming the company gives your sales a boost that wouldn’t otherwise occur without that registered number.
In addition, if you are acting as a contractor, the majority of prospective clients who are going to use your services will expect you to trade as a limited company. This for their protection but also to avoid employment rights that can arise when you have been working for them for a certain period.
Separate entity to the owners. You are dealing with a company not just one person
As mentioned above, the business is considered a separate legal entity. This means that a supplier or customer has some security knowing that whatever changes to personnel happen, the company itself will remain as long as it is trading.
Structuring and Equity. Different shares can be issued to different shareholders. When raising equity you can sell shares or re-structure offering more flexibility than being a sole trader
Having a limited company to trade through not only means you are protected and potentially considered more reputable; you also have flexibility when it comes to ownership. A sole trade owns their business and therefore takes all of the responsibility as well as all of the profit. When you register as a limited company you also add the opportunity to provide dividends, shares, rights and opportunities to restructure. Investment into a limited company is considered safer for the investor but also for the owners as their own assets are not at risk in the same way.
If you want to register a limited company please see our company formation packages.
For more information the company registration process please contact us.