Why would I form a company limited by shares?

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I operate as a sole trader in Newcastle. It’s a good set-up, and I’m having quite a bit of success financially. I am now ready to expand, and would consequently like to think about developing this business into a proper company. At the same time, I’m having trouble tracking down any discernable benefits from doing so. Why would someone actually go about forming a company limited by shares? Can you recommend what types of benefits I would receive in doing so?

Answers

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A limited by shares company is suitable for any type or size of business that aims to make a profit for the benefit of it’s owner(s). The main benefits of registering a business as a limited company are:

  1. Limited liability - As a shareholder of a limited company, your personal finances are protected if your business ends up in financial difficulty or has to close. You will only be liable to pay the nominal value of your shares toward any business debts. Currently, as a sole trader, you have unlimited liability and your personal assets are not protected.
  2. Professional image - Limited company status is an effective way to boost your credibility and enhance your professional profile. Many people prefer to do business with limited companies, especially where high-value contracts are concerned.
  3. Tax efficiency - Business income and personal take-home pay can be managed in a more tax-efficient manner through a limited company because you will pay only 20% Corporation Tax on profits (which excludes your director’s salary), as opposed to 20-45% Income Tax and National Insurance as a sole trader. This can result in significant savings.
  4. Incorporated businesses like limited companies have to adhere to stricter reporting and public disclosure requirements than sole traders. This creates trust and boosts professional integrity.
  5. You can sell shares in your business if you need to raise finances.
  6. You can set up a company on your own or as a joint venture with other people.

To register a limited by shares company, you need to complete a incorporation application for Companies House. This can be done is as little as 3 hours if you use an online formation agent.

a year ago
 

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