Should I Form A Limited Company?
Recent tax changes, originating from the 2002 Budget, have made it even more important to consider carefully, when running a business, whether it is best to trade as:
- Sole trader — an individual
- Partnership — two or more individuals or companies
- Limited liability partnership
- Limited company
We
are often asked, ‘Should I form a Limited Company?’ The
reality is that there is no easy answer. Each situation has to
be judged individually. As well as the obvious issues of tax and
national insurance contributions (NTCs), there are many other
potentially relevant factors, such as:
- The business
- Its expected rate of growth
- The degree of commercial risk
- Administrative obligations
- Personal preferences
- Pensions and retirement
In the early years of a business, the privacy of operating as a sole trader or partnership may be attractive. Business funds can be used at will with fewer rustications than in an incorporated environment.
However, we are considering here the features of a limited company. A company is a completely separate legal entity subject to two main areas of regulation — tax and company law. This guidance note looks at some of the advantages and disadvantages of trading as a limited company. Please do contact us if you want more specific help or advice.
Possible advantages of incorporation
- Incorporation normally provides limited liability. If a shareholder has paid fully for his or her shares, he or she cannot normally be required to invest any more in the company. Although companies with bank borrowings often have to provide directors’ personal guarantees, the protection of limited liability will generally apply in respect of liabilities to other creditors.
- A company enjoys legal continuity - it can own property, sue and be sued.
- Effective ownership or part ownership of the business may be readily transferred, subject to the provisions of the Articles of Association. Whilst such transfers inheritance tax business property relief, the capital gains, cover my well tax position needs careful review.
For more information please call our office on 0115 978 5244