Benefits of a Limited Liability Company
- Setting up a limited liability company offers just that: limited liability
- Greater degree of business credibility of trading through a limited company
- Ownership of a limited company can be spread over a greater number of people
- Shareholders in a limited liability company are only liable to lose the value of the share capital to which they subscribe
- The rights of shareholders are clearly defined and protected
- Employees can acquire shares
- A company is a legal form of a business organisation, which is classed as a separate legal entity and, therefore, is separate and distinct from those who run it
- For sole traders and in partnerships, the individuals’ personal assets are at risk if there is a claim against the organisation
- A company pension scheme can be secured through a limited company
- A limited company has a greater ability to raise finance by the issue of shares and also finances under the Business Expansion Scheme
- The company’s name is protected: incorporation protects the name from use by another Limited company
- Limited companies have flexible borrowing powers
- The company continues despite the death, resignation or bankruptcy of shareholders
- The interests and obligations of the directors are defined
- Appointment, retirement or removal of a director is straightforward
A limited company is not only legally established, but is also regulated. This inspires confidence in the company from customers and potential investors and creditors.
Company as a Separate Entity
As a limited company is seen as a separate legal entity , then if directorship or management changes then the company continues under new management. This offers security to employees and other members.
Advantages of a Limited Company
Operating as a sole trader means you are subject to personal income tax which, once income is over a certain amount, means your personal income tax is higher than corporation tax. Forming a limited company subjects your companies earnings to corporate tax only, hence having substantial financial benefits as profit will be higher as a result of reduced tax payments.
In the event of your company failing your liability is limited. Therefore, you are not personally liable for the companies debts giving the advantage of protecting you personally from bankruptcy. Your maximum losses are only what you invested into the company; your personal finances and assets cannot be touched by creditors.
Borrowing, Financing and Expanding
A limited company has access to both business loans and the ability to appeal for investment. In comparison to a sole trader, who must use personal loans and funds to finance the business, a limited company may apply for a business loan which banks are more likely to lend compared with personal loans.
Combined with the limited liability associated with a limited company business loans are a good method of financing. Appealing to outside investment, for example angel investors, means financing options are available with no interest payments. The investor, in exchange for their investment will be allotted shares.