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What Is A Limited Company And Do I Want One?

What is a Limited Company and do I want one?

I get a lot of questions along the lines of – my friend told me that I should be a limited company is this a good idea?

But it turns out that the majority of people when they think about it don’t actually really know what a limited company is or what the point of it is?

Put simply a limited company is a separate “legal person” from you.  If you decide to become a one person limited company you will have 2 roles.  You will be an owner of the company via owning a share (a shareholder) and you will also be a director of the company.

In larger companies the directors and shareholders are different people – the directors manage the company (and are paid a salary) and the shareholders are the owners of the company who are entitled to the profits of the company via dividends.

When you set yourself up as a limited company your customers and suppliers will contract with the company rather than you.  The money that the company earns belongs to the company and the company pays tax on it.

Any money that you take out of the company is treated as your taxable income (either as a salary or dividends).

When you operate as a sole trader or partnership you are simply taxed on your profits whether you choose to pay those out to yourself or not (there is no such thing as paying yourself wages as a sole trader)

There are advantages and disadvantages to having a company

Advantages

It can save you tax (although not as much as it would have in the past and really depends on your own circumstances)

The company is liable for it’s debts rather than you personally, so for example were you to be sued by somebody they could only take the money and assets the company had rather than your personal assets.

Disadvantages

You can’t treat the company’s money as your own, every penny you take has to be properly accounted for as salary (and you will need to set up a payroll scheme with HMRC for this) or dividends for which you must prepare the appropriate paperwork.

The additional admin involved can be a pain and it is harder to do everything yourself without an accountant, and if you do have an accountant the fees will be higher due to needing to run payroll each month etc.

I could write an essay on this and still not cover everything so if you have any questions about whether it is right for your circumstances please contact us and we can advise you.

 

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