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Being self employed is a dream situation for many, the idea of being your own boss, of doing things your own way and the attractive notion of working hard to make yourself rich rather than someone else is likely to have found their way into the thoughts of many people working for a salary. Fewer though, are the people who, for whatever reason, decide to take the plunge and start working for themselves. At some point, such entrepreneurs are likely to consider the choice between operating as a sole trader/ partnership, or registering their business as a Limited company and may well seek business advice as to which is most appropriate. There are inherent advantages of a limited company and disadvantages too, so how would you decide?
The Main Advantages of a Limited Company
- Separation of Liability – One of the biggest advantages of a limited company over a sole trader business is that the business owner is a separate legal entity to the business. This means that the business owner and the business are financially separate with neither being liable for the others finances or debts. A sole trader business on the other hand, is legally indistinguishable from the owner. Under normal circumstances, the Director of a Limited company cannot be pursued for the debt of their company, but the owner of a Sole Trader business can.
- Statutory Paperwork – While there are many advantages of a limited company, the paperwork is not one of them. The protection afforded Directors from liability comes with considerable checks and balances, the requirement to regularly file various documents with official bodies being far in excess of the more simple arrangements for sole traders. The administrative burden for Ltd companies being one of the biggest disadvantages of incorporation.
- Tax Efficiency – As a sole trader, everything your business earns is your income and if you’ve already exceeded your personal allowance, you’ll be paying income tax and national insurance contributions based on however much that is. With a limited company being a separate entity to its owner/s, there are more opportunities to make use of various rules and concessions to streamline tax affairs. With the option to remunerate yourself via a combination of salary and dividends as well as more options when it comes to reimbursements for expenses, the ability to make more efficient use of business money is one of the key advantages of a Limited Company.
- Improved Image – While a side benefit, being able to print ‘Director’ rather than ‘owner’ or ‘proprietor’ on your business stationery gives an extra air of professionalism as does having ‘Ltd’ or ‘Limited’ written after your business name.
Whether you think the advantages of a limited company make incorporation right for you, or is continuing or setting up as a sole trader is a better choice, or even if you’re undecided, it’s worth seeking a second (or even first) opinion and at Lines Henry we offer a free consultation for solvent and insolvent businesses of all kinds.
As Licensed Insolvency Practitioners, we’re experts in the affairs of business finance and while we spend much of our time dealing with helping businesses in trouble, we get to see what went wrong and how to make situations better, which makes us a rich source of advice for businesses seeking to learn from the mistakes of others. You don’t have to be insolvent to make use of an Insolvency Practitioner! Why not contact us and find out what Lines Henry can do for you?