Should I Operate as a Limited Company?
One trading option for a business is to operate as a limited company. This will provide access to a number of tax planning strategies and limited liability status. Although there is perceived prestige in operating as a limited company you will lose some of your privacy – directors and shareholders’ personal details and abbreviated accounts have to be filed, and are open to public scrutiny. A limited company is a distinct legal entity that is able to enter into contracts in its own name. This is important as it means that all the company’s liabilities are the responsibility of the company – not the directors and shareholders! The only exception is if you, as director of the company, offer a bank or other creditor a personal guarantee to repay the company’s debt, if the company cannot. So what are the pros and cons of incorporating your business?
Significant Advantages as a Limited Company
Limited liability status – as explained above this can protect your personal assets from business creditors if for any reason the company has to cease trading and is unable to clear all its debts. This protection is especially useful if there are significant risks associated with your business activity.
Possible double taxation – as the company pays its own tax on profits and gains, it can only distribute what is left, the retained profits, to directors and shareholders. This can give rise to tax being paid both by the company and by the directors or shareholders when they withdraw the taxed profits from the company.
More cost – the professional costs in setting up,preparing accounts and tax returns for companies can be higher than those you would expect to pay if you were say self employed. Additionally,there are costs in complying with Companies Office formalities.
Audit requirement – If your company exceeds certain size limits, or is in a particular trade sector, it may require an audit, incurring further costs. We can advise on this but generally, most small businesses will be exempt from audit.
How we can help?
Would a limited company be suitable for your business?
Needless to say this is not an easy question to address in just a few short paragraphs of text. We are more than willing to discuss your individual requirements and undertake a proper risk assessment of your business venture. This will enable you to make a balanced judgement on the best way to take your enterprise forwards. Be it a limited company or unincorporated structure it should allow you to take advantage of the most beneficial tax arrangements available to you, and make sensible choices about action that you can take to minimise your commercial risks.
If you would like to discuss any of the issues raised here, do get in touch with us at 01 8486816.