A question faced by all new businesses is the question of incorporation. This is by no means a straightforward question, with a number of important factors to consider.
It is important to properly understand and consider these factors, as once the initial decision is made it is very difficult to reverse it. In this article, I explore some of these factors.
What is a limited company?
A Limited Liability Company is an 'incorporated' business structure, meaning that to bring the company into existence it must first be formally registered.
Once registered, the company is its own legal entity, meaning that the owners, managers, and shareholders are separate from the company.
Incorporation protection (Limited Liability)
Trading via a Limited company provides business owners with a level of personal protection that is not available to sole traders. It is the company that carries the risk, rather than the individuals personally, meaning you are not personally liable for any financial losses made by your business, offering you a safeguard should the unexpected happen. It also provides protection on the business's legal brand name because you're registering your company name. There are strict Companies House registration rules when it comes to company names to prevent others from using a name too similar to that of a registered business. It is worth noting that company directors must adhere to best practices.
The level of profits and your personal position can make trading through a limited company more efficient for tax purposes. It is worth noting that the saving (where there is one) could be impacted by the upcoming change in corporation tax rates and future government taxation policy.
There are costs involved in establishing (incorporation fees) and maintaining a limited company (registered office and company secretary fees, annual return costs, accountancy, and taxation fees). Though by no means prohibitive the impact of these should be considered. However, the UK still maintains the lowest incorporation costs in the world, with no complex requirements when setting up a limited company.
Depending on your trade, some customers may prefer (or in rare cases insist) on dealing only with a limited company. Details of the company being available to view via companies house can give comfort to both existing and prospective customers.
Appearing on the public record
Limited company accounts are required to be filed on public record at companies house. Even though small companies can take file fileted or abridged accounts, which provide less information than the full account, it may be that you do not wish the remaining information (such as details of directors, cash position, level of reserves) to be viewable online.
If you would like to discuss the above or find out more please do not hesitate to contact us today. Or to see how we can help you and your business, see our business advisory page here.