When you decide to start your own business, you will need to consider the type of legal structure the company will have. Although it is often easier to be a sole trader and start your business on your own, the limited partnership structure is also available.
There are currently around 3.5 million limited companies in the UK. The limited company is one of the popular legal structures in the UK and can be used for all sizes and types of business.
You should keep in mind that a limited partnership is one of the most complex formations and requires a lot of administration and financial responsibility. But you’ll also be able to enjoy certain benefits that you won’t with a self-employment job.
It should be noted that there are advantages and disadvantages for any business that you must take into account before starting your company. Here are the top 10 advantages a limited company will have compared to working as a sole trader.
1. Now it’s easier to get started
The Companies Law of 2006, effective as of 2009, introduced some changes that facilitated the start of a limited company. Also, thanks to technology, it is now much easier to start a limited company because it can be done online.
Previously you had to wait weeks for Companies House to process all the paperwork. Now, the process is easier, and the cost of incorporation is also allowable. In addition, some websites will help you form and register your business without any hassle.
2. You will pay fewer taxes
With a limited partnership structure, you will legitimately pay less personal taxes. UK corporation tax is currently set at 19%.
As a shareholder and director of a limited company, you will be able to choose a small salary and get most of your income from the company through dividends. Dividends from a limited company do not enter into National Insurance Contributions (NICs).
So, with the last option, you will reduce the number of contributions to the NIC. Instead, as a self-employed person, all of your earnings will be subject to national insurance rules. Having a limited company will enjoy a greater part of your profits.
3. The company will have a separate legal identity
A limited company is an entity with a legal personality. That is, it is completely separate from its owners or shareholders. In this type of company, third parties are the ones who contract with the company, and everything that has to do with the bank account, ownership of assets, participation in contracts, and tenders is the responsibility of the company.
Everything is separated from the company’s shareholders’ interests and owners, which means that the directors and shareholders can change over time in a limited company and survive without a problem.
For the limited liability company to stop operating, it must be formally dissolved, liquidated, or ordered by the Mercantile Registry or the courts. Instead, a sole trader is treated as a single entity for administrative and tax purposes.
With this type of company, both the employees and the commercial structure will enjoy greater security.
4. Limited liability
With a limited partnership, you will have limited liability security, meaning that you will not be personally liable for fraud. If any financial loss or something goes wrong within your business, you will have additional protection.
In contrast, the owners do not have this protection with a business on their own and will be responsible for any debt or financial claim.
5. Your business will have a more professional image
A limited liability company can give your company or business a more professional image. When a company decides to do business with large companies and industries, limited liability companies are likely to have better luck than sole proprietorships.
Your company will suggest that you are committed to responsible and efficient management and will remain in the market for the long term. All customers and suppliers will feel more confident working with you, and your business opportunities will increase.
With a limited company, you will be able to present several classes of shares, so it will be easier to sell or transfer the parts of the business. When this type of structure has more than one shareholder, you must acquire an agreement detailing their duties and responsibilities.
In addition, with this agreement, it will be possible to describe what shareholders can or cannot do with their shares.
7. You will get financing faster
When starting any business, it isn’t easy to find financing. It may be easier for you to find the capital you need with a limited liability company because it is different from its owners. On the other hand, for a sole trader, it can be difficult to find business financing because it can be riskier and last for a short time.
8. Options when raising new capital
Sole traders and partnerships raise new capital through their resources. While limited liability companies can raise capital by issuing new shares at any time.
The new shares may be offered to existing shareholders or new investors who wish to form part of this company. However, you should keep in mind that only corporations are the ones that can offer shares to the public.
When new classes of shares are created, they can have more flexibility in voting and higher dividends. To start a successful limited company, you can access the popular UK website and enjoy the best company formation specialists.
A limited company may finance the pensions of its employees. The company will make pension contributions before taxes can be deducted. There are no social security contributions for the employee or employer on pension contributions. This means that contributions are not subject to tax for employees.
This means an important tax advantage over those who are self-employed or sole traders. You can have more information by visiting the popular website to form and register companies in the UK.
When you register a company or business with Companies House, that name will be protected by law. No one will be able to use that name or any name that is considered similar in the future.
But when you are a sole trader, other people may likely have and trade under the same name as you, and you will not be able to claim or do anything about it. Having the same or similar business name can damage your image, and you may find yourself needing to change your business name and spend more money.
As you can see, the LLC can protect you and set you apart from your competitors. You can choose a recognized and professional website to create company formation in the UK through an easy and fast process.