Why Should You Form A Limited Company?

Why Should You Form A Limited Company?

When you decide to open a new business, one of your first decisions will be the type of company or legal entity that you want to form. There are different reasons why you may choose to form a limited company and understanding the benefits can help to make this decision a bit easier.

Forming a limited company via a company formation agent such as 1stformations.co.uk gives you protection in a number of ways. Limited companies mean that the owner responsibility regarding debt is limited. This simply means that should the business fail or you decide to sell, you are not personally held responsible for any debts that are incurred by the company. Limited companies are their own legal entities so your personal assets, such as your home and automobile, will not be taken and sold in order to settle business debts if you form a limited company.

Another benefit of a limited company is that it can be more tax-efficient to draw dividends as a limited company owner as opposed to earning revenue as a sole trader. Tax rules do change periodically, so it is important that you pay attention to how these rules are changing. Generally speaking, however, it is much more tax advantageous to draw against your limited company revenue than it is to pay tax as a sole trader.

Limited companies are generally recognized as more professional and reputable than sole trader businesses. Many consumers feel that if you go through the process of becoming incorporated, you are much more serious about your business. This could lead to higher sales and revenues for you, simply because you have chosen this legal entity over other options.

Again, a limited company is considered its own legal entity. This in itself offers a number of benefits. Suppliers and vendors have a bit of security knowing that no matter how your business staff may change, your company itself will endure as long as you continue to trade. Again, this leads to more trust in your company and a much more positive reputation in many cases as opposed to general partnerships and sole trader businesses.

Limited company status gives you the protection of limited liability and offers a bit of flexibility pertaining to ownership in your company. As a sole trader, you own the business and many times, you may operate the business on your own. Limited companies have directors who handle the day to day operations of the business and while the owner can act as a director, he or she can also appoint someone else to be a company director. This gives you as the owner more freedom in what you do and does not do within your company. It could offer you more free time to spend with family and when you register a limited company, you have the option of providing shares, dividends and other rights for restructuring. Investment in a limited company is considered a safer option for most lenders, as well which could make raising capital for your new business venture much easier in the long run. 

Poppy Watt

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