Many people begin their business journey as a sole trader, but there are definite advantages to be gained by operating as a limited company. According to the latest statistics from Companies House, there are approximately 4 million incorporated companies in the UK and roughly 93% of them are active. Going Limited may be beneficial to your business, here are the facts and you can decide for yourself…
- Protection through limited liability
Taking calculated risks is part and parcel of doing business, whether you’re a sole trader or a limited company, but only the latter insulates you from you a calculated risk gone wrong. The former will leave you out in the cold. The law states that a limited company has its own legal personality, which is separate from the people who make up the company itself. This means that third parties, such as clients and suppliers, enter into contracts with the corporate entity rather than individual directors and shareholders.
- Tax and National Insurance efficiency
As a director of a limited company, if you take a small salary and most of your income comes in the form of dividends, you’ll still be entitled to State Benefits without paying any employer or employee National Insurance Contributions (NICs). Dividends attract less tax than salary and aren’t subject to NICs, whereas a sole trader’s entire income is subject to NICs.
- Improved reputation/credibility
Confidence is critical in business and a limited company has a veneer of professionalism, which can instill confidence in your business.
Some clients – large corporations and those in the financial sector especially – simply prefer to work exclusively with limited companies, but others flatly refuse to deal with unincorporated businesses. So, having a limited company can present new business opportunities that may not otherwise have existed.
Other advantages of limited companies include:
- Not that expensive or difficult
If you ask most people how you’d go about forming a limited company, chances are they’d stare back at you blankly. A common misconception is that incorporating is some kind of bureaucratic obstacle course that can take months and cost thousands of pounds. The truth, though, is that you can incorporate online in less than ten minutes!
- Easier access to finance
The separate legal entity of a limited company may make it slightly easier to secure finance than sole traders. Also, companies can raise capital by issuing new shares to shareholders and new investors.
- Securing a trading name
Once you register a company with Companies House, the company name is legally protected, which means there can only be one company in the UK with the same name (or anything too similar). The trouble is, as a sole trader, someone else can use your trading name and you’re powerless to stop them. Worse still, if they received negative online reviews this could hurt your business no end and put you through the stress and inconvenience of having to change your trading name and potentially lose all the hard-earned brand recognition that you’ve built up over the years.
- Easier to sell/transfer business ownership
If you want to call it a day, sell your shareholding or (heaven forbid) you go to meet your maker, it’s much easier to transfer ownership of a limited company than an unincorporated structure. Clients, equipment, the whole caboodle can be bagged up and sold off. For sole traders, this can be problematic, as typically the equipment used is owned by them personally, and many elements of the business are tied to their specific identity.
What are you waiting for? A limited company isn’t for everyone, but the advantages are attractive. So if a limited company is your preference as your business structure, you can wrap up the entire process online in just a matter of hours.
