Top 4 Benefits of Operating as a Limited Liability Company
Although many people in the UK choose to operate as a sole trader, the far-reaching outcomes of selecting a limited company are more favourable. Although the business formation you pick is ultimately dependant on your particular circumstances, a limited company might be right for you if the following four benefits make sense.
1. Your business becomes a distinct entity
When the process of forming a limited liability company is finalized (after all that extensive paperwork), it becomes a legal entity. This means the interests of its stakeholders are separate from those of the company.
The company can have its own bank accounts (meaning there can be no mingling of business and personal finances), can be party to contracts and own assets like cars, equipment and buildings. Best of all, it is taxed separately from the shareholders.
2. You reduce your tax liability
Operating as a limited liability company could mean you pay less in personal tax. Although it is not a natural process, it is doable if you want to save personally.
You can choose to get paid a small salary which gets taxed according to the rules of the National Insurance Contributions (NICs) when the salary moves from the company’s account and into your account. After that, you can then choose to pay yourself more by declaring dividends, which have their very own taxation rules separate from the NICs’, meaning you could potentially pay less for earning more.
However, as a self-employed person running a sole trader enterprise, all your earnings are subjected to the taxation rules of the NICs.
3. You have limited liability
This is one of the biggest reasons people all over the globe choose to register a limited company. Sometimes, things go wrong, and you have added protection with a limited company than a sole trader, meaning your personal risk is significantly minimized.
For example, if the company suffers losses, you are not liable for those losses since your finances, and those of the company are separate. Also, if the company gets sued, that lawsuit won’t affect you personally.
For those operating as a sole trader, they are directly affected by financial problems and claims made against the business.
4. Easier to find funding than a sole trader
When starting any business venture, funding is critical to not only getting things up and running but survival as well, considering that you need working capital. There are various ways to get financing in the UK, and those that believe in their vision and success aren’t afraid to incur debt.
However, in the current economic climate, lenders aren’t just handing out business loans to anyone with a business. If you are wondering how to fund a limited company in the U.K, you are in luck because it is a little easier than being a sole trader.
With a limited liability company being a distinct legal person, separate from its owners, you stand a better chance at securing financing from lenders.
If you are not sure whether a limited company is right for you, there are benefits to choosing the sole trader route as well. However, you end up missing out on some crucial advantages. A limited company provides more protection and flexibility than being self-employed. Once you have seen the benefits of both popular business formations in the UK, you can make an informed decision on what suits your circumstances best.