limited company registration: advantages and disadvantages
DESCRIPTION
A short powerpoint on the advantages and disadvantages of limited company registration.When setting up a business, many individuals will have the tough choice between company formation, or registering as a sole trader. Here, we look at some of the pros and cons of setting up a company to help you make the decision that is right for you. We also look at the different routes you can take to register a company, to ensure that you know exactly what you are doing, and which route is right for you. The short presentation on company formation looks to ensure you get the best possible start when you set up company. Brought to you by Wisteria Formations.TRANSCRIPT
ADVANTAGES AND DISADVANTAGES OF A LIMITED COMPANY A summary of the arguments for and against company incorporation, brought to you by Wisteria Formations.
TYPES OF COMPANY IN THE UK
There are a number of different types of company in the UK
Sole Trader Partnership Limited Liability Partnership Private Limited Company Public Limited Company Company Limited by Guarantee Unlimited Company
WHAT IS A LIMITED COMPANY?
A company that has liability limited to a certain value for the members.
This is the value of shares or value of the guarantee, depending on which type of limited company it is.
You can get public or private limited companies.
In private limited companies, shares cannot be offered to the general public.
ADVANTAGE 1 OF A LIMITED COMPANY: LIMITED LIABILITY
This benefit results from the company being a separate legal entity from the owners.
The owners’ liability is restricted to the amount they paid for shares. There is no personal liability.
This offers some protection for new business, for example, that you won’t lose personal possessions.
However, liability is only limited if directors act legally. In addition, these companies may see banks demand personal guarantees against larger loans.
ADVANTAGE 2 OF A LIMITED COMPANY: PROFESSIONALISM AND PRESTIGE
A limited company is a legally established and regulated entity.
This often inspires a confidence in customers that may not be present when dealing with sole traders.
These perceptions of professionalism and the size of the company aren’t just felt by customers. Creditors and potential employees may see this as favourable as well.
ADVANTAGE 3 OF A LIMITED COMPANY: RAISING MONEY
It may be easier to acquire larger amounts of credit from the banks. However, as stated earlier these could require personal guarantees.
Although they cannot offer shares publically, limited companies can still raise money through the private transfer of shares.
If you decide to sell the business, you may find it easier to sell a limited company than you would a sole trader business.
ADVANTAGE 4 OF A LIMITED COMPANY: TAX SAVINGS
Companies have to pay Corporation Tax on their profits, and employees must pay tax on their earnings.
However, there is a lower rate of tax on dividends. This means it may be possible to extract profit without paying the higher rate of income tax.
DISADVANTAGE 1 OF A LIMITED COMPANY: PRIVACY
Some details and information about the company must be filed with Companies House on a regular basis.
This information is often publically available for inspection, for example the Registered Office address.
Therefore, there is less privacy than a Sole Trader would enjoy.
DISADVANTAGE 2 OF A LIMITED COMPANY: ADMINISTRATION COSTS
Accounting costs for a limited company tend to be more expensive (and complicated) than for a Sole Trader.
After a certain level of total revenue, limited companies are required to have their annual accounts audited (which can be expensive).
General operational administration costs are generally higher for an incorporated business, for example, as a result of filing.
DISADVANTAGE 3 OF A LIMITED COMPANY: FILING REQUIREMENTS
All limited companies are required to submit certain filings to Companies House.
The annual return, detailing information about the company, must be complete every year.
The annual accounts detail the financial position of the company, and are completed every financial year.
These are compulsory documents, that will incur a fine for late filing.
AN ALTERNATIVE: SOLE TRADER
Fairly simple accounts compared to limited companies.
Reduced administration costs.
No requirement to make information public.
Choice over how the business is run.
Unlimited liability means that the owners are personally liable for the debts of the business.
Tax burden is relatively high.
Credit rating or the proprietor affects that of the business, so credit is hard to obtain.
Pros Cons
HOW TO FORM A LIMITED COMPANY?
There are three methods of forming a limited company in the UK:
1) Directly. This requires you to do all the filing and work with Companies House.
2) Through an accountant/lawyer. This method is often the easiest in terms of effort, but you pay for it through their time.
3) Through a formation agent. For example, Wisteria Formations...
A BIT ABOUT WISTERIA FORMATIONS...
UK Company Incorporation for £24.99.
Easy 10-step application process online.
Free consultation with business, tax and accounting experts to get your business off to the best start!
W: http://www.wisteriaformations.co.uk
T: +44 (0)844 893 0808