One of the widely known advantages of Register A Limited Company instead of a traditional sole proprietorship lies in the fact that a "Limited Company" separates business owners' identities from that of the business, this way if something goes wrong, for any reason whatsoever, and the company needs to cease its operations outstanding debts will not affect personal assets owned by its directors, in other words, owners and directors are not fully liable thus their personal belongings can not be confiscated in order to offset any loss incurred by the business entity.
Another advantage that comes from forming a Limited Company is the reputation and credibility projected by having a "Business Name" followed by Ltd. as we all know this is often perceived as a professional business venture which has gained a respectable position and can be trusted; sole proprietorships do not have this "vote of trust" so these operations are not considered established and reputable by customers and investors when compared to the former. Yet another advantage comes after filling out tax return forms, a Limited Company has many advantages in this area compared to a sole proprietorship so the savings are often substantial since they are deducted from the company's net profit. There are several other benefits that come after forming such a business entity but as you can see a sole proprietorship is in a clear disadvantage when we consider the many features offered by an Ltd.
UK limited company advantages
Company formation is incredibly fast and inexpensive. You can Register A Company with Companies House, the UK agency which regulates every ltd company in England and Wales, in a matter of hours and for as little as a few tens of pounds if using an online service. As a contractor, you can benefit from significant tax advantages by trading through an ltd business. Most contractors pay themselves a minimum salary and take the company profits as dividends, which can result in much higher take-home pay compared to being paid a salary from other trading options. You can claim legitimate business expenses from your own ltd company, such as the costs of running a home office with all the computers, software, and equipment that requires, plus travel expenses, subsistence, and even training costs. And, as its name suggests, a limited liability company can protect your personal assets, such as your home, if the worst happened and a client decided to sue your company.
Disadvantages of a limited liability company
Even though your company is a separate legal entity from you personally, you still have duties, obligations, and responsibilities as a shareholder and director. This would not apply were you to contract via an alternative trading option. After you register a limited company, you must send annual accounts prepared by your accountant, annual returns, and notifications of any changes to shareholdings and company officers, such as directors and company secretaries, to Companies House Your UK limited company must also file a corporate tax return with HM Revenue and Customs, the UK's tax collection agency; failure to do so can result in fines and even criminal prosecution.
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