What are the advantages of setting up a limited company?

Choosing the right structure is crucial for the success and longevity of any business. Corporate Associate Brad Stewart describes the advantages of setting up a limited company to help you decide whether it’s the right move for you.

The establishment of a limited company comes with several advantages that contribute to their popularity. Limited companies are often preferred by entrepreneurs and businesses due to the flexibility in ownership and management. This legal structure offers a distinct set of benefits which range from liability protection to financial flexibility.

The main advantage of setting up a limited company is having limited liability. This means that the liability of the company’s shareholders is limited to the amount that they have invested, meaning personal assets are generally protected from business debts. As a sole trader or partnership your personal assets are at risk, so if your business gets into debt you could lose your house, car and other possessions.

The company is also seen to have a distinct legal entity which is separate from its owners, again providing protection for the personal assets of shareholders. This enables shareholders to have peace of mind that if the business doesn’t go to plan, they are somewhat protected (although business owners need to be aware that banks and other lenders may nevertheless seek separate personal guarantees as security against lending to the company).

The company will continue to exist regardless of changes in ownership. If an owner should leave or pass away, the company will be passed on to their successor and its assets will remain with the company. This ensures stability and continuity for investors and stakeholders too.

Another advantage is the professional image and brand protection. Operating as a limited company can enhance perceived credibility and professionalism, which can be beneficial for attracting clients and business partners.

The corporate structure of a limited company also facilitates employee incentives through the option to issue shares to staff. It enables the possibility of Employee Ownership Schemes which are an effective tool to attract and retain talented individuals, in circumstances where you may not necessarily be able to afford to pay large salaries to them.

Being a limited company also enhances the ability to raise capital. The company can issue shares to raise funds from investors (although in a private limited company they cannot be offered for general public sale) which is beneficial for ambitious and growing businesses as it provides other means of raising capital, rather than relying solely on loans or personal funds.

The tax structure differs from that of sole traders or partnerships. Limited companies benefit from lower tax rates (as compared to individual tax rates), which may allow for increased retained profits.

Whilst there are many advantages, there are also additional responsibilities and disadvantages. These include stricter regulatory and reporting requirements and ongoing compliance such as the obligation to maintain statutory books, make event-driven and periodical filings at Companies House, maintain an up to date register of persons with significant control (PSC) and prepare, approve and file annual accounts and director's statements in accordance with the appropriate accounting regime. It is important to consider the specific business needs and goals to ensure this is the correct business structure for you.

What can we do to help?

With decades of experience between them, our well-respected corporate team has successfully assisted businesses of all kinds with transactions big and small. They will be more than happy to discuss whether this is the correct business structure for you and advise on measures to ensure the future success of your business such as shareholder agreements, cross options, employee option schemes, articles of association and asset transfer agreements.

Please contact Brad Stewart on 0113 201 0404 or email ku.oc1714164315.fcl@1714164315trawe1714164315tSB1714164315 for more information.

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