Many a times, entrepreneurs contemplate the decision whether they should register a limited liability company, or whether they should continue to operate as a sole trader until they grow their business. Registering a business name and a company in the UK is not a daunting task, but entrepreneurs should have a clear understanding of whether a company registration is required for their businesses. If you’re a small-scale businessman assessing whether you need to register a company in the UK to take things further, or a fresh entrepreneur considering whether you should register a business as the very first step of your investing journey, this article addresses many questions you are currently faced with.
What is a private limited company in the UK?
A private limited company is a company structure where owners are not personally liable for the company’s liabilities. Owners or shareholders of a limited company are liable to the extent they have invested in the company, and this forms one of the most basic economic concepts; a company is a legal person in its own right.
When should you consider registering a private limited company in the UK?
The best time to take your business to the next level by incorporating a private limited company is when your small business has grown considerably from where you started, and when the business is big enough that your tax bill is starting to give you a few reasons to worry about. In hindsight, you should consider incorporating a private limited company when you feel that the company has grown to a sufficient level where you are constrained by the lack of legal presence to grow the company any further and reduce tax bills. There are no hard rules, and deciding when to take your company to the next level is up to you. On the other hand, if you do not have a business at present but have access to a sizeable amount of capital, it’s always better to let the company stand on its own and register a business name in the UK and incorporate a private limited company, because sooner or later you will have to.
What are the benefits of registering a business as a private limited company in the UK?
There are multiple advantages of registering a business as a private limited company in the UK, and some of the most important ones are listed and discussed below.
You and your company become separate entities
For an entrepreneur, there is no fear greater than the fear of being sued by creditors in case things go north with the business operations. Even though any entrepreneur is exposed to this risk, the stakes are much higher when the business grows to a certain extent where the liabilities of the business have grown considerably. The best way out is to incorporate a private limited company in the UK and separate liabilities of the company with that of yours. Creditors would no longer be able to request compensation from you for the amounts owned under the name of the business even if the company goes bankrupt. This is one of the primary reasons for you to consider registering a private limited company in the UK.
Any entrepreneur in his right mind would want his business to have a high reputation among his existing and potential customers, and a sure fire way to achieve this is by registering the business as a private limited company in the UK. Private limited companies are taken more seriously by customers and often times, many customers consider this as a sign of continued business operations for a long period of time.
A lower tax bill is a dream for not only entrepreneurs in UK, but for any person on earth wherever they might be. A private limited company is taxed at 19%, which is the corporate tax rate in the United Kingdom. On the other hand, if you are a high-earning individual, you would be taxed at a very high rate that could even go up to 45% depending on your income band. With the incorporation of a private limited company in the UK, entrepreneurs have the option of withdrawing business income as dividends, which attracts even lower tax rates.
Ability to hire talented employees
Not even the greatest entrepreneur in the world can run a business that grows on to become one of the most profitable firms around without hiring top talent to drive the growth of the company. However, hiring top level talent is an increasingly difficult task in the UK without registering the business as a private limited company, and employees are seeking the perceived safety that comes with working for a private limited company.
Access to more capital
It’s virtually impossible for a start-up to transition through to become a highly profitable, large-scale company without having access to a sufficient level of capital. Funding might come in various ways in the UK, and could be in the form of a bank loan, a credit facility provided by a financial institute, or even a private equity investment by a prominent venture capital investor. However, most of these doors would be closed for entrepreneurs who do not take things seriously by registering the business as a private limited company in UK, and it’s very important for any entrepreneur with a vision for a much bigger thing than just a start-up to take things further by incorporating a private limited company in the United Kingdom. It goes without saying that no investor bank would want to invest in or lend to a company that is not a separate legal entity, but a part and parcel of the entrepreneur himself.
Whether you are an entrepreneur with a bright business idea, or a small business owner with a view of taking things to the next level, registering a private limited company in UK is the best option to choose considering the many advantages that comes with it. There are legal implications of course and a few complexities that we plan to discuss on another day.