What are the benefits of setting up a limited company
Tuesday 6th June 2023
Lee Pedlar
There are several benefits to operating as a limited company, which is a separate legal entity from its owners. Here are some key advantages:
Limited Liability: One of the main benefits of a limited company is limited liability protection. The owners, known as shareholders, are generally not personally liable for the company's debts or legal obligations. Their liability is limited to the amount they have invested in the company.
Separate Legal Entity: A limited company has a distinct legal identity separate from its owners. This means that the company can own assets, enter into contracts, and incur debts in its own name. This separation provides a layer of protection and can enhance credibility when dealing with suppliers, clients, and other businesses.
Tax Efficiency: Limited companies can offer tax advantages. They have the flexibility to manage and optimize their tax liability by utilizing tax planning strategies. This can include deductions for business expenses, allowances for capital expenditure, and potentially lower tax rates for corporate profits compared to personal income tax rates.
Perpetual Existence: Unlike sole proprietorships or partnerships, a limited company has perpetual existence. It can continue to operate even if the shareholders or directors change. This continuity makes it easier to transfer ownership, raise capital, and plan for long-term business growth.
Credibility and Professionalism: Operating as a limited company can enhance credibility and professionalism in the eyes of customers, suppliers, and investors. The "Ltd" or "Limited" designation indicates a structured and regulated business entity, which can inspire trust and confidence.
Ease of Capital Raising: Limited companies have more options for raising capital compared to sole proprietorships or partnerships. They can issue shares to attract investors, seek funding from banks or financial institutions, or access other financing options. This can provide opportunities for business expansion and growth.
Succession Planning: Limited companies offer greater flexibility for succession planning and transferring ownership. Shareholders can sell or transfer their shares to others, facilitating smooth transitions and ensuring the continuity of the business.
It's important to note that operating as a limited company also entails certain responsibilities, such as compliance with legal and regulatory requirements, filing annual financial statements, and maintaining proper corporate governance. Seeking professional advice from accountants, lawyers, or business advisors can help ensure compliance and maximize the benefits of operating as a limited company.
