What are the benefits of setting up a limited company?

Tuesday, 17 January 2012 02:17

Setting up a limited company could make sense

If you are considering going into business for yourself, then you may want to explore the advantages of setting up a limited company.

A limited company is one whose liability is limited and there are many advantages to establishing yourself as a limited company contractor.

Setting up and running a limited company can take time and if you are busy securing contacts and ensuring you have enough work going forward, you may not have the time to tackle all of the issues at hand.

However, there are various companies that can help you with this and ensure you comply with all the various legislation.

The first step is to register with Companies House and to gain approval; the company must have at least one director above the age of 16.

However, before doing this it is important to understand what a limited company is and how you could benefit from forming one.

One of the main advantages to working as a limited company contractor is the fact that it is the most tax efficient way of working. Becoming the director and shareholder of your own limited company allows you to withdraw the funds from your company as a dividend rather than receiving all of your income as a salary, which reduces the combined tax you and your company will pay.

Limited companies are only taxed on the profits they make, usually at a rate of 21 per cent.

Tax can be a complicated subject and although you may have a sound enough knowledge of the system to work out the best way forward, speaking to a company, such as an accountancy service provider, with expertise on the subject could help you understand your options better and save you time.

Another advantage to working as a limited company contractor compared to a sole trader is the limited liability the shareholders are exposed to.

Should the business go into receivership, the shareholders have limited liability for the organisation’s debts.

This means their personal assets are not put at risk and they do not have to pay more than they have already invested, which is not true of sole traders and non-limited companies.

It is important to remember that a limited company exists as a separate entity to the people running it. What this means is that should the directors retire or pass away, the company can continue trading.

This is a benefit for those employed by the company, as it gives them peace of mind.

With businesses under financial pressure in these difficult economic times, it is important that you have a degree of credibility when offering your services.

Registering with Companies House as a limited company may say to prospective clients that they are dealing with a credible person and improve your chances of working with them.

These are just some of the benefits of setting up a limited company.

Before proceeding, you may wish to discuss the subject with a professional adviser, who can go into greater detail about the advantages of establishing a personal service company rather than operating as a sole trader.

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