Limited company advantages and disadvantages explained

Limited company advantages and disadvantages explained

One of the first decisions that future company owners have to make when they are trying to set up a new company is the right type of company for their business. For many people, limited company is the ideal solution, but others will disagree. This is quite natural because different businesses have different needs. After all, that’s why there are a few different options. But, how can you tell whether this option is the best solution for you? The fact is that there are limited company advantages and disadvantages and you should get familiar with them before you choose this type of company in the UK.

According to many experts, you should analyze your personal conditions, your plans for the business and the nature of your business before that. In this article, we will analyze both the advantages and disadvantages of limited company formation.

Limited company advantages

To start with, limited company formation is very fast and affordable. It is possible to register a company of this type with Companies House, the UK organization which manages the registrations process of every limited company in England and Wales, in just a few hours.  On top of that, you won’t have to pay much to get this job done in case you decide to finish this process over the Internet.

As a business owner, having a limited company is a smart idea because it will provide important tax advantages. Trading through a limited company will bring tax cuts and incentives. The vast majority of owners pays a minimum salary for them and uses the profit of the company in the form dividends. This is a much more logical solution compared to other types of companies because your income won’t be burdened with unnecessary taxes.

Furthermore, it’s also possible to use the expenses associated with your business activities like using a home office and the tools (hardware and software) you need to conduct activities, travel expenses, training costs and more to lower the tax. In addition, a limited company can keep your personal assets safe. This means that even if your company fails, you will still keep your home and other important belongings. You are vouching only with your company’s assets.

Limited company disadvantages

Of course, there are some potential disadvantages of running a limited company. For example, this entity is not related to your personal assets, but the company still has obligations, duties, and responsibilities and the director/s and the shareholder/s have responsibilities too. Every limited company must submit yearly accounts prepared by professional accountants. They also have to file a corporate tax return. You must use the HM Revenue and Customs for this purpose. If you don’t do this, you will face penalties or even criminal charges.

By analyzing the pros and cons associated with this type of company, you should be able to make the right decision. The fact is that limited company advantages and disadvantages are not the same and the first ones outweigh the latter.

Close Menu