What are the advantages of trading as a limited company?
Other than it being the most tax efficient way, with more tax planning opportunities than being self employed, perhaps the most attractive benefit of trading as a limited company is the aspect of limited liability…
- Being Limited means essentially this protects the personal assets of the officers should the company run into financial difficulty.
- Many of the costs and administrative requirements associated with running a limited company are now not much more than those of a sole trader or partnership (it didnâ€™t used to be this way but the Government has made huge strides in helping small limited business develop).
- Limited companies also instill added confidence in suppliers and creditors; many large organisations will only conduct business with limited companies.
- The ownership of a limited company can be easily divided up through the sale of shares.
- The shares can be further used as a means of generating capital i.e. selling shares in your company.
The tax implications of trading through a limited company as opposed to as a sole trader or partnership are quite complicated but we do have a great page forÂ sole trader or limited companiesÂ that we would recommended you read. Having a limited company for some is viewed as an “insurance policy”, especially for a new or high risk business, ensuring that you do not risk your personal assets on a speculative venture.
In addition to limited liability, a limited company has the following advantages:
- You can give a share of the business to others, e.g. family, but if they receive dividends youâ€™ll need to be able to justify the work they do if investigated by HMRC as every time you make a dividend payment (you can make these whenever you wish) they will also receive a percentage. For example husband and wife: if the wife has 80% and the husband has 20% and they draw a dividend of Â£1,000 the wife will receive Â£800 and the husband Â£200.
- It may be easier to attract people to invest money in your business.
- Obtaining bank loans may be easier.
- In the event of a partner leaving, it is easier to continue the business.
- Limited companies offer better tax planning opportunities â€“ for example every penny you earn in a tax year as a sole trader will be taxed that year, however with a limited company you can store money in your company and take in future years.
- It is easier to sell the business.
- You have a better standing in the public eye.
- It can assist in the protection of a name.
- People have more confidence in your business as they can check up on your company, on the public records, on Companies House.
- Contractors and Freelancer’s may find it easier to obtain work.
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