The Pros and Cons of Limited Companies

What is a limited company

A limited company is a legal entity in its own right. It stands separate from it's directors, employees and shareholders in the eyes of the law. The company can own assets and can also incur debts, it can sue and be sued. This is the biggest difference between a limited company and a sole trader or partnership where the businesses assets and liabilities are that of the owner(s).

What are the Pros

The biggest pro for a limited company is that of the 'limited liability'. Because the company is a separate entity the director cannot be held responsible for its debts (in most cases) their liability is limited to the amount they have invested in the company.

Limited companies can also be seen as more professional businesses, which in reality isn't always the case. Some businesses will only deal with limited companies.

Additional money can be raised by the company by selling more shares, and it is easier to transfer a limited company.

It allows you to protect your business name. No one else in the UK can have the same name as you.

There are some tax savings to be had. Dividends will normally be taxed lower than income tax and NI.

That sounds good. What about the Cons?

The biggest con comes from the increased legislative burdens placed on limited companies. A set of accounts will need to be submitted to companies house annually. These are then available to anyone, including competitors.

It costs to set a limited company up. It's not huge though, we can do it for £29.99.

Depending on how much you make, you may need an audit.

The decision on your business structure is not one to be taken lightly and is something you should always seek professional advice on.

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