A limited company allows the entrepreneur to keep their own finances separate from the business. In simple terms, this is a company with limited liability. Shareholders and other investors are only responsible for the money they have invested, if the company runs into debt.
Advantages of running a Limited Company
Another advantage is that limited companies are separate legal entities from owners. The company will continue to flourish beyond the retirement or death of its members. Ownership of the company can be transferred by selling shares and it is easier to secure funding through banks and through shareholders because of the reduced risk.
Limited companies tend to be more economical to run because of reduced taxes and accounting fees. Members who are high earners can benefit from tax advantages because they can keep money invested in the business or place it into a pension scheme.
If you are going to be forming a limited company, you should try to pay yourself a minimum wage so that you can take advantage of the personal allowance of £6,475 (at the time of writing) being income tax free.
If you begin as a small business, you can operate from your own home and claim for this cost. You do this by working out how many rooms you use for your business and calculating the house costs such as electricity, heating, water and council tax, and dividing this by all the rooms in your house. This gives you the amount you claim back.
Instead of buying a company car, you can use your own car for your business and charge its mileage to the company. This means you can benefit from fuel which is tax free and these costs can be deducted to the company.
Ownership and control of limited companies is in the hands of the main shareholders. This means that business decisions are able to be made quickly and fluidly.
Limited companies are registered with a company name which has to be unique. This gives the business an identity and branding. You need to search to make sure the name you want to use is available. As no two companies can share a name, there is no confusion when they begin trading. They can also be dormant for as much time as you need, yet you can still protect the business name.
Employees can occasionally buy shares and become shareholders. This motivates employees, rewarding them for their hard work and giving them an incentive to make the business succeed. They will also have an opinion in how the business is run.
Running a limited company can give your business extra credibility with customers as well as suppliers. You will have a unique name and branding and your business could benefit hugely from these factors.