What are the Advantages of a Limited Company?

Published on 26 September 2020 at 11:40

Have you ever considered starting a limited company?

There are many reasons why a business owner may choose limited company status over operating as a sole trader or partnership, here are just some; 


Limited Liability Protection

A limited company is a separate legal entity to the people who make up the company itself. This means that third parties, such as customers and suppliers, enter into contracts with the legal entity rather than individual directors and shareholders.

If you run a limited company as a director, you have limited (capped) liability for its debts, which works out to the amount you paid for the shares plus any unsecured loans made to the company. Therefore, if the company runs into trouble you won’t be personally responsible for all of its financial losses. 

The same legal protections aren't afforded to sole traders or partnerships. 


Improved Reputation and Opportunities

Some larger businesses won't work with sole traders or partnerships, only doing business with incorporated entities. As a sole trader or partnership you could be missing out on a large segment of potential customers. Becoming a limited company opens up more opportunities! 


Better Access to Finance

As a separate legal entity from its directors it is generally easier to access finance as a limited company than as a sole trader. In addition, limited companies are able to raise capital by issuing new shares to existing shareholders and investors. 

Sole traders are restricted to the amount of finance that they can raise personally - potentially limiting business growth. 


Control Over Your Pay

Unlike sole traders, limited company directors can be paid through a combination of salary and dividends. Dividends are taxed differently than a salary and aren’t subject to income tax and national insurance contributions. If a limited company director takes a small salary then they will still be entitled to state benefits. 

For more information on the specifics of paying yourself as a director, read my blog post - www.matrix-accounts.com/blog/463818_limited-companies-salary-vs-dividends


Easier to Sell or Transfer Ownership

In the future if you do want to sell your business or transfer its ownership then this is much easier to do as a limited company. This is because any assets and liabilities are owned by the limited company and not you personally (as is the case with a sole trader). 


Protect your Business Name

Names of limited companies registered with companies house must be unique. Don't let a competitor take your ideal limited company name! 


For more information you can contact me at will@matrix-accounts.com 

Limited Company packages start from £35 per month, all packages include ongoing advice and support. More information - www.matrix-accounts.com/pricing

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