When it comes to setting up a business, one of the fundamental decisions you'll need to make is the legal structure of your company. Operating as a limited company is a popular choice for many entrepreneurs, but it's essential to understand the advantages and disadvantages before taking the plunge.
Limited Liability: One of the most significant advantages of a limited company is that your personal assets are protected. Your liability is limited to the amount you've invested in the company, offering security for your personal finances.
Tax Efficiency: Limited companies often enjoy tax advantages, such as lower corporation tax rates (if your profit is under £50K) and the ability to split personal income between salary and dividends, potentially reducing your overall tax burden.
Professional Image: Operating as a limited company can convey a sense of professionalism and trustworthiness to clients which may help you secure contracts more easily.
Easier Access to Capital: Limited companies typically find it easier to attract investors or secure loans because of the clear corporate structure and accountability.
Continuity and Perpetual Existence: Limited companies have perpetual existence, which means that the business can continue even if the owner(s) change. This offers long-term stability and growth potential.
Increased Admin Burden: Running a limited company involves more paperwork and admin than sole traders or partnerships. You'll need to file annual accounts, maintain company records, and meet various legal obligations.
Costs: Setting up and maintaining a limited company can be more expensive than other business structures due to registration fees, accountancy costs, and compliance expenses.
Public Disclosure: Limited companies are required to disclose financial information, including annual accounts, which becomes publicly available. This can lead to reduced privacy for business owners.
Director Responsibilities: As a director of a limited company, you have legal responsibilities, including the duty to act in the best interest of the company and its shareholders. Failure to do so can lead to personal liability.
Choosing a company name: While you think choosing a name for your company may be simple, this is often easier said than done. The company name must be registered at Companies House, and it cannot be the same as another previously registered company- so you will need to put your thinking hat on!
So, as you can see, there are a lot of factors you must weigh up before making a decision on which type of business structure is right for your journey. Make sure to consult with your accountant before making a decision, as we can provide further personalised guidance and ensure you make the right choice for your business.