If you are thinking of starting a business, one of the first things you will need to decide is what type of company structure to set up. There are several different types, but the most common is the limited company. In this blog post, we will discuss the key features of a limited company and why it might be the best option for your business.
1. Limited Liability
One of the main advantages of setting up a limited company is that it offers limited liability. This means that if your business runs into financial difficulties, creditors cannot pursue the owners for any money that is owed. The company is considered to be a separate legal entity, so any debts or liabilities are only applicable to the business and not to the owners, directors, or shareholders personally. As noted in the article titled: Uniwide Formations: How to Set Up a UK Limited Company, this means that the personal assets of the owners, such as their homes or savings accounts, remain safe. Also, the personal finances of the owners are kept separate from the business, meaning that any profits or losses stay with the company.
2. Tax Advantages
Another advantage of setting up a limited company is that it can provide tax advantages. Limited companies are subject to corporation tax on profits instead of income tax and as such can often benefit from lower rates than those paid by sole traders or partnerships. Additionally, certain expenses incurred in running your business may also be tax-deductible when you are operating as a limited company. Sometimes, dividends from the profits can be paid to shareholders, which may also be subject to a lower rate tax than income tax. If you are considering setting up a limited company, it is important to speak with a tax specialist so that you can ensure the structure of your business is optimized for maximum tax benefit.
3. Increased Credibility & Professionalism
Operating as a limited company can also help to improve your credibility and sense of professionalism with customers, suppliers, partners, and other businesses. When a customer sees that you are operating as a limited company, it can create an impression of trustworthiness and reliability due to the level of regulation and protection that limited companies must adhere to. Additionally, having the legal protection offered by setting up as a limited company may give customers more confidence in doing business with your company.
4. Separation Of Ownership & Management
A limited company also provides for separation between ownership and management. This means that shareholders who do not take part in the day-to-day running of the business won’t have any say or control over how it is managed. This can be beneficial if there are disagreements between owners regarding the direction of the business or if a particular owner wishes to leave or retire. The company can continue to operate in the same way without any disruption, as the management remains responsible for running the business on behalf of its shareholders.
5. Easy To Set Up
Setting up a limited company is relatively straightforward and does not require any special permits or licenses. Most people will be able to do this themselves by registering the company with Companies House using the appropriate forms. Additionally, there are also third-party services available that can help you set up your limited company for a fee. Overall, setting up a limited company can provide many advantages for businesses, from offering protection from personal liability to tax benefits and increased credibility. While setting one up may sound intimidating at first, it is simpler than it looks and can give your business an edge in the competitive marketplace.
6. Raising Capital
A further advantage of limited companies is that they can raise capital more easily than other types of businesses, as they can issue shares to investors and grant them partial ownership. This means that limited companies have access to a much broader range of potential sources of funding, allowing them to expand their operations more quickly or take advantage of new opportunities. As such, forming a limited company can be an important step in the growth and development of a business.
7. Regulatory Requirements
Next, it should also be noted that there are certain regulatory requirements associated with setting up and running a limited company. Companies must adhere to laws regarding filing annual returns and accounts and providing information about directors and shareholders, as well as any other relevant regulations. This can be time-consuming, but it is an important part of ensuring the company operates legally and ethically. Also, any changes to the company structure or ownership must be notified to companies house, so this must be done on time.
Is it hard to set up a limited company?
No, setting up a limited company is relatively straightforward and does not require any special permits or licenses. Most people will be able to do this themselves by registering the company with Companies House using the appropriate forms. Additionally, there are also third-party services available that can help you set up your limited company for a fee, as we mentioned. The regulatory requirements of running a limited company can take time and effort, but they are essential in ensuring compliance with all laws and regulations. All in all, forming a limited company is an important step in setting up and growing a business as it offers many advantages such as protection from personal liability, increased credibility, and easier access to capital and tax benefits.
Can anyone apply to set up a limited company?
Yes, anyone who meets the requirements can apply to set up and run a limited company. These requirements include having two directors (one of whom must be a UK resident) as well as at least one shareholder. Additionally, certain regulations must be adhered to, such as filing annual returns and accounts and providing information about directors and shareholders. It is important to make sure all of these requirements are met before setting up your limited company to ensure the business operates legally and ethically.
As you can see, setting up a limited company has several advantages and is often seen as the most suitable option when starting a business. It protects from personal liability and offers tax benefits, while also improving your credibility with customers and other businesses. For these reasons, setting up a limited company should be seriously considered when starting a new business venture.