When you’re starting a business, one of the biggest decisions you’ll have to make is what type of company to form. There are a few different types available, but limited companies offer several advantages over other options. This article will discuss some of the key benefits of limited companies and why they might be the right choice for your business.
Less Personal Liability
A company is a collective, and not having to be liable for every aspect of it is essential for you. As the article What is a Limited Company – Uniwide Formations explains, this kind of company limits the amount of financial responsibility that an individual has. If something goes wrong, shareholders are only held liable for their investment in the company meaning they won’t have to give away any of their personal possessions.
For example, if you are a limited company director and the business owes money, creditors can only go after the company’s assets and not your personal belongings. This gives you less personal liability and protection in the event that things go wrong.
A Professional Status
A company that’s structured like this is a lot more attractive to potential clients and business contacts. It also gives you a professional status, which can be great for networking. You might find that people are more likely to take you seriously as a business owner if you’re a limited company. This can be a big advantage if you’re trying to build up your brand.
For example, let’s say you’re a freelance web designer. If you’re a sole trader, you might find that clients are less likely to be interested in working with you. But if you’re a limited company, they’ll see you as a more credible business owner. This can help you win more work and grow your business.
Having this reputation can also help you when you’re negotiating with suppliers. They may be more likely to offer you better terms if they see you as a serious business owner.
Having A Higher Personal Remuneration
Limited companies will often offer higher personal remuneration to their directors and shareholders than other business structures. This is because limited companies can better utilize allowable expenses to reduce the amount of tax payable on profits.
There are a few key points to remember when considering higher personal remuneration. For one, the company must be trading profitably in order to pay out dividends. Also, the dividends can only be taken from post-tax profits and the higher earners may be liable for higher rates of tax on dividends received
However, overall, higher personal remuneration is often possible with a limited company than with other business structures. This makes it an attractive option for many individuals looking to maximize their earnings.
Tax Efficiency
There are lots of tax benefits of a company that’s structured as a limited one. These are the following:
- tax-free dividends: A limited company can give tax-free dividends to its shareholders from the profits that are left after tax has been paid.
- a lower tax rate on profits: A limited company pays corporation tax at a lower rate than what individuals pay on their income tax.
- ability to offset losses: If your company makes a loss in any given year, you can offset that against future profits or carry it forward to offset against future years’ profits.
Separate Legal Entity
This structure draws a barrier between the company’s assets and your personal ones. So, if the business hits hard times, your house is not on the line. This gives limited companies an advantage over sole traders and partnerships where owners are liable for all debts of the business.
A separate entity means the company can own property, enter into contracts, employ staff, and sue or be sued in its own name. The company is also liable to pay tax on its profits. This limits the financial risk of being a director to only the amount you have invested in the business.
Protecting The Company Name
It’s easier for a company to maintain a reputation when it’s a limited company. This is because the business name is protected, so no one else can trade under that name. If someone trading as a sole trader or partnership uses the same name as your company, they could damage your reputation and make it hard for customers to find you.
For example, if you’re a limited company that provides accounting services, and someone starts offering a similar service under the same name, it could cause confusion for customers trying to find your business. This is less likely to happen if you’re a limited company because your name will be protected.
More Credibility
This structure also guarantees more credibility for your business. When customers or clients see that you are a limited company, they will be more likely to trust you and feel confident doing business with you. This is because they can see that you have taken the time and effort to register with Companies House and follow all of the necessary regulations.
They will also know that your company has been verified by HMRC, which gives it an extra layer of legitimacy. All of this makes it more likely that people will want to do business with you, as they can be sure that you are a reliable and professional company.
Better Investment Opportunities
A limited company will have a much more versatile portfolio than a sole trader. This is because a limited company can offer shares to the public, whereas a sole trader cannot. A limited company can also better protect its assets through shareholders’ agreements and the use of trusts. This makes a limited company a much better investment opportunity.
A limited company will also have access to better loans and credit lines. This is because lenders see limited companies as being less of a risk than sole traders. Limited companies also tend to have better relationships with suppliers and customers. This means that they are more likely to get better terms and conditions from suppliers, and better payment terms from customers.
