What are the main advantages of a limited company?

One-way trade could be the best option for a lot of people who are just beginning their journey and operating an enterprise, however there are many advantages that can being a part of an unincorporated company.

According to the latest figures on Companies House, there’s a little more than 4 million registered firms across the UK and about 93 percent of them are in operation.

Here are a few most important reasons to establish the company as a limited liability company or, to give it a fancy name, an incorporation, could be granted the go ahead to be a sole trader.
You’re protected through a limited liability

The ability to take calculated risks is an integral part of running a business, regardless of whether it’s a solo trader, or an established corporation however only the latter will protect you from the consequences of the risk of a calculated error. In the former, you’ll be exposed to the elements.

Since the beginning of time (well in 1897) the law has stipulated that a limited business has its own legal identity that is distinct from the people that make up the corporation. This implies that third parties, like suppliers and clients contract with the company rather than individual directors or shareholders.

The major benefit in this distinction legal is when you manage an unincorporated company as director, you’re only responsible for the privilege of having a limited (capped) responsibility for its debts. This usually amounts to the price you paid for your shares, as well as any loans that are not secured by the business. If the company is in trouble, or is completely bankrupt and you’re personally accountable for any financial losses. The only exception is when the creditors of the company suffer losses due to fraud you’ve committed while director, in this the company will be liable for no personal liability.

In contrast the sole trader status provides no protection against financial claims in the event that a business fails since a self-employed individual and their business is treated as one entity for tax and administrative reasons. They are able to have unlimited personal liability for business debts, and under certain circumstances, their homes could be put in danger.

Efficiency of National and Tax Insurance effectiveness

With Benjamin Franklin’s famous quote that there are only two things that can be certain in life: death and taxes, any chance to reduce tax burdens is always welcome.

If you are a director of an LLC, even in the event that you receive a low pay and the bulk of your earnings are from dividends, you’ll remain eligible for State Benefits without paying any employer or employees National Insurance Contributions (NICs).

Dividends are tax-free than salary, and they do not have the burden of NICs while the entire income of a sole trader will be subject to NICs.

In a small-sized company that is a limited company, higher take-home pay is the norm of the hour. However, modifications to the taxation of dividends over time have seen certain tax benefits reduced and shareholders of limited companies facing increased taxes. For many, however it’s more tax efficient to run limited companies.

Improved reputation/credibility

Confidence is essential for business, and a small company displays a look of professionalism that can help build confidence within your company.

Certain clients – major companies and those working in the financial industry in particular – prefer working exclusively with limited companies. However, some clients simply refuse to work with non-incorporated companies. Therefore, having a limited company may provide the possibility of new business opportunities that would never have existed otherwise.

Other benefits of UK company formation are:

It’s not too costly or complicated.

If you ask the majority of people what you would do to begin the process of creating or establishing an LLC, the most likely they’ll stare at you with a blank stare. The most common misconception is that incorporation is a type of bureaucratic hurdle course which can take a long time as well as cost a lot of dollars. However, the reality is that it’s possible to do it on the internet in just 10 minutes, for less than the price of a pizza takeaway or for no cost at all!

Access to financing is easier

The legal entity that is distinct from limited companies can help you get financing to grow your business. This is different from sole traders. Additionally, businesses are able to raise capital through the issue of the shares of shareholders as well as new investors to anyone in the world, excluding Joe Public (only public limited companies are able to do this). In contrast sole traders must find new capital using their own funds. If they are cash-strapped it’s pretty much the same.

Obtained a trademark

If you have registered a company through Companies House, the company name is legally protected meaning that you can only have one company within the UK that has the identical name (or something that is similar). As sole trader, anyone could use your business name, and you’re unable in stopping them.

And, even more so is if they’re involved in suspicious transactions (think Cowboy Builders and Rogue Traders) this could harm your business in the worst way possible and leave you with the hassle and stress of needing to change your business name and risk losing the brand recognition you’ve earned over time.

A trade name that is protected to ensure a future business

Let’s say you’ve experienced an epiphany – you’ve got an idea that’s enthralling and a name to a company, but you don’t have enough time or money to pursue it. Instead of giving up on your idea completely, you could set up the foundation of a dormant business to put the company on hold while protecting its name as a trading entity in the process.

According to HMRC in the eyes of HMRC and Companies House, a dormant company doesn’t trade or have made any significant accounting transactions in a fiscal year. You’ll have to inform them and Companies House know that your business is inactive and there are certain things you’ll have to report every year, but establishing an unregistered company will safeguard your future interests.

It is easier to sell or transfer ownership of a business

If you’d like to put it down and sell your shareholding, and (heaven should) you decide to make your acquaintance, it’s simpler to transfer the ownership of a limited company as opposed to an unincorporated company. Equipment, clients, and everything else could be put in a bag and then sold.

In the case of sole-traders, this may be a problem, since most of the equipment they use is owned by the sole proprietor and many aspects of the business are tethered to their particular identity.

It’s not as difficult as you believe!

As a director of a limited company will have a variety of director’s duties. You’ll need to stay up with your bookkeeping as well as pay your company and personal taxes, and file the accounts and other tax returns with HMRC or Companies House. It’s all somewhat irritating.

What are you waiting on?

If these benefits have caught your interest and you’re planning to establish a limited company as the business structure of your preference It is possible to complete the entire process online in an hour (Companies House provides a fast process and can approve the majority of applications within 3 hours).