Are you looking for limited company advantages in the United Kingdom? Do you need a UK lawyer to help?

In the United Kingdom, limited companies are a preferred business structure by entrepreneurs, and for good reasons. This type of company is owned by shareholders and is recognized as a separate legal entity from its owners. While limited companies can be private or public, they offer several advantages and disadvantages.

One of the main advantages of a limited company is limited liability. This means that shareholders’ personal assets are protected if the company experiences financial difficulties or legal action. With this protection, shareholders are only liable for the amount of money they have invested in the company, and their personal assets are not at risk. In addition to limited liability, limited companies are subject to lower corporation tax rates and can claim tax relief on certain expenses.

Continuity for the company

Limited companies also have a perpetual existence, providing stability and continuity for the company and its employees. Furthermore, limited companies often have a more professional image than other business types, which is vital when dealing with customers, suppliers, and investors.

However, there are also disadvantages of limited companies. For instance, they have increased administration requirements, such as filing annual accounts and returns with Companies House, which can be time-consuming and costly for small businesses. Additionally, limited companies are required to file annual accounts and other information with Companies House, which is available to the public, and this may not be desirable for companies that wish to keep their financial information private.

Directors of limited companies

Another disadvantage of limited companies is the higher costs associated with setting up and running the company, including incorporation costs, legal fees, and ongoing accounting and tax requirements. Directors of limited companies also have a greater responsibility than other business owners and are legally obligated to act in the best interests of the company and its shareholders.

As of March 2021, there were over 4 million companies registered in the UK, with around 2.9 million active companies and 1.2 million dormant companies. Private limited companies were the most common type of active company, with just over 34,000 public limited companies.

The number of new company registrations has been steadily increasing in recent years, with 780,766 new company registrations in 2020, up from 663,293 in 2019. The professional, scientific, and technical activities sector accounted for 18% of all new company registrations in 2020.

While limited companies offer significant advantages such as limited liability and a professional image, they also have disadvantages, such as increased administration and disclosure requirements, higher costs, and greater responsibility for directors. Entrepreneurs need to weigh these pros and cons carefully before deciding whether a limited company is the right business structure for their needs.

With a range of benefits and pitfalls, here’s all you need to know about limited companies, including; what they mean compared to other structures and what their advantages and disadvantages are:

The advantages of a limited company in the UK

There are a great many advantages to setting up a limited company. Here they are:

Tax efficiency

A sole trader would have to pay between 20 and 45% tax on their profits. For a limited company, this is a fractional 19%, making it much more tax-efficient and why it is such a favourable business model.

Limited liability

If a limited business incurs debts and fails to succeed then the owner is not personally responsible – your home, assets and personal finances cannot be taken into account to cover debts. Although if you can keep your business afloat using your personal assets then you are free to do this.

Business Law In England

The director of a limited company has no attachment to the company’s actions, therefore is not accountable for any business failures. A sole trader cannot detach from their business and is seen as one unit, giving no protection if the company fails.

Professional status

Trademarking a limited company protects it from others being able to use the name, or trade under the same name. This also means that you can easily be found online and with over 80% of consumers now using online search engines to research local businesses, this is something you need to be a party to.

In addition to this, limited companies can appear bigger than they actually are making them seem more professional and thus more attractive to potential investors and/or consumers/clients. This could also mean that directors of limited companies may find it easier to obtain funding, such as bank loans, as they appear a more secure option over a sole trader.

Secure Pension

An owner of a limited company can invest pre-tax money into a business pension scheme. What this means is that the director is saving money for the future whilst securing a higher tax return amount right now.

The disadvantages of a limited company in the UK

With advantages, come disadvantages and here they are:

Complicated start-up

It can be tricky to set up a limited business in the first instance and can often incur a fee. You also need to register with Companies House and provide them with your business records, accounts, directors and shareholders.

This is information that becomes published and accessible to anyone.

This reduces the amount of privacy the company has. You will also need to have the necessary insurance in place to cover you. Any staff and often public liability insurance too.

Paperwork

Any mistakes made in recording, or not recording properly, things that are required for tax returns can result in harsh penalties from the HMRC.

It is essential that bookkeeping is done thoroughly and regularly which often means hiring assistance plus a business accountant. Accountants can be extremely costly.

You can look into limited company formation in the UK and book a free consultation before making any commitments.