Pros and Cons of Starting a Limited Company in the UK
A limited company is among the most widely used business models in the present day world. This is primarily because of a number of benefits it offers over other business models. Below we’ve given an overview of the pros & cons associated with starting a limited company to help you make a better decision.
Pros of a Limited Company:
Investors can be more inclined towards taking a risk on limited firms since their investment is likely to have more protection as compared to a partnership or sole trader.
Also, the investor’s accountabilities are also restricted to their shareholding when it comes to a limited company.
As long as there are no unexpected clauses in the company’s articles or shareholder’s agreement, transfer of shares in a limited organisation is normally easier & also more convenient as compared to the one in a sole trader or partnership.
Banks are likely to prefer limited firms & they’re provided with a chance to take out additional security by lodging a ‘floating fee’ over the assets of the company.
Meaning, in case the terms & conditions of the finance are breached for any reason, the bank will have the first claim over the assets.
For a limited firm, the dividends aren’t subject to national coverage & are at a reduced tax rate than self-employment income.
Effective tax rates
People who intend to retain some of their profits within their business can enjoy reduced tax rates on limited firms.
Cons of a Limited Company:
Banks may still need personal assurance from the directors. Meaning, the directors may still be held accountable for the debt of the company.
Directors are also required to send statutory documentation to the Companies House. Hence, those who fail to do this might be charged with late filing penalties & may also be deemed to have committed a criminal offence
When you become a limited organisation, your accounts along with other details are likely to be held on public records. As a result, anybody including your competitors is able to access company info, even though it might be restricted.
One expense which is likely to be higher when it comes to limited companies is your accountancy fees since the reporting needs tend to grow bigger.
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