Do I need a Limited Company?
While you were scoping the internet looking for small business accounting services, you may have come across limited company accountancy services. If you’re an entrepreneur, the first question that must have popped in your mind was; what’s the difference between being self-employed and having a limited company? Here, we are going to answer just that, and also reveal the benefits of running your business as a limited company.
What is a Limited Company?
A limited company is a business structure where the company is considered as a distinct body. This means the company is going to be legally distinct from the person or people who run it. As a limited company, its finances will be considered separate from the personal finances of the owner, and the owner will be able to keep any profits after taxes and will also be allowed to own assets.
Benefits of a Limited Company
Now that we’ve got that out of the way, it’s time to take a quick look at all of the benefits of having a limited company as opposed to being self-employed.
Personal Liability is Minimised
One of the main benefits of running a limited company is that should your company run into any financial trouble, your personal assets will remain secure. This is because a limited company is considered as a separate entity, separating it from those who own and run it. This is also known as ‘the corporate veil,’ which means any losses, debt, or legal claims are the sole responsibility of the company and not its owners. As an owner or shareholder of a limited company, you will not be legally obligated to pay more than the value of shares you have purchased of your business.
Many entrepreneurs and business owners start out as partnerships or sole traders and then, later on, convert their business to a limited company. The switch to a limited company makes sense once your business starts to grow since it provides many benefits to the owners and stakeholders, one of which is keeping the finances of the owners and stakeholders safe during a financial downturn.
Having a limited company and hiring the services of limited company accountants means that you can also save on taxes. This, by far, is one of the biggest advantages of running a business that has a limited company status. Running a limited company means that you can minimize the amount of national insurance contributions that you have got to pay since dividends of a limited company are not subject to NICs.
This is because if you are an owner or a stakeholder in a limited company, you can choose to draw most of your income from your business in the form of dividends. Now, compare this to being a sole trader, where all of your income is going to be subject to NIC rules.
Enjoy Professional Status
Needless to say, owning a limited company will improve your image and professional status. While all of the day to day business activities and internal management might remain the same, as a company, you will create a better impression of your business as compared to being self-employed.
One of the reasons why businesses run as a limited company are held at a higher regard is because of the perception that all incorporated companies are more thoroughly monitored and have more complex accounting needs, which requires complete accountancy services.
Giving your business a more professional image also means being able to attract more investors and customers, and also helps create a reliable brand identity.
Since a company can have more than one owner, you can help raise additional capital for your business by selling shares of your company to new investors. Another advantage of running your business as a limited company is that companies are normally considered to have more lending opportunities as compared to sole traders.
In fact, some banks only lend to a limited company, as opposed to a sole trader. Once your business is recognized as a limited company, you can secure a loan without having the need of shareholders to provide you with security against the company.
Once your company has been registered by its company name, it is now protected by law. This means that no one can use the name of your company or any name that is deemed similar. But, as a sole trader, it is very possible that someone else could trade under the same name, without you being able to take any legal action about it.
In this way, running your business as a limited company ensures that your company’s name is going to be distinct and your own, but more importantly, it is going to help separate your business from the rest.
As a limited company, you can issue various classes of shares to shareholders. If your limited company has got more than one shareholder, then getting a shareholder’s agreement will be a smart idea. You can also hire the services of limited company accountants to help you with the shareholder’s agreement.
Running your business as a limited company allows you to start your own business within a limited cost. Contrary to popular belief, entering the business sector as a sole trader does not have a lower cost. That’s because, as a sole trader, you will be the only one who is invested in your business. On the flip side, as a limited company, you can bring several shareholders onboard, which significantly reduces the cost of starting a limited company.
If you are thinking about running your business as a limited company, then you can easily hire the services of professional limited company accountancy services, who offer various fixed-fee accountancy packages according to your needs.