Limited company or sole-trader?
Tax Advantages the main advantage of running your business as a limited company is that you are likely to pay less tax than a sole trader. As a company director you can choose to take a small salary and minimise the amount of National Insurance Contributions you will have to pay and take the rest of your income in the form of dividends, which are taxed separately and not subject to NICs.
Distinct Entity a limited company is a completely separate entity from its owners. Everything from the company bank account, to ownership of assets and involvement in tenders and contracts is purely company business and separate from the interests of the company’s shareholders.
Sole traders and their businesses are treated as a single entity for tax and administrative purposes.
Limited Liability as the name suggests, if you are a limited company, you are protected in case things go wrong. As long as no fraud has taken place, you will not be personally liable for any financial losses made by your limited company.
Those running their business as self employed do not enjoy such protection.
Professional in some business sectors having a limited company can provide a more professional image. Lager companies may prefer to deal with limited companies.
Funding Finding funding can be difficult for all kinds of businesses in the current climate. Being a limited company however, may make it easier to secure business finance as the company is a distinct entity from its owners.
Naming once you have registered your company with Companies House, your company name is protected. This prevents others from using the same name, which could result in damage to your reputation or business model.
Shareholders a limited company can issue various classes of shares. This means you can easily sell stakes in the company, or transfer ownership of shares.
Pensions a limited company can fund its employees’ executive pensions as a legitimate business expense. This can offer a tax advantage over those who are running their business as self employed.
Succession If a shareholder wishes to retire, sell his shareholding or dies, it is far easier to transfer ownership of a limited company than a non-registered business structure.