As business advisers, we’re often asked whether incorporation is the right choice for new and growing businesses.
But the answer isn’t always straightforward. The truth is, there is no right or wrong way to run a company and incorporation will depend heavily on your goals and unique circumstances.
However, it is important to understand the advantages and disadvantages of incorporation, so we’ve listed the key points you need to know about below. For more information, please get in touch with our expert team.
As a sole trader, you are personally liable for everything your company does, both legally and financially.
But the reverse is true for limited companies. As a director, you have what is known as “limited liability” – meaning almost all losses or debt incurred are not your personal responsibility.
There are exceptions to this rule, however. Deliberately causing a company to fail or withholding funds from creditors could result in civil, and sometimes criminal, prosecution.
A limited company is an asset that can be sold, shared or transferred, meaning it retains value even if you are no longer a part of it. This creates opportunities for an exit strategy and a succession plan.
Once registered, your limited company and its name are legally protected, meaning no one else can use it.
As a director of a limited company, you can pay yourself a tax-efficient combination of salary and dividends, meaning you could take home more of what you make.
Investment and strategy
There are generally more opportunities to save tax through a limited company, as there are more corporate allowances and tax deductions at your disposal.
Administration and responsibility
As a director of a limited company, you are responsible for ensuring it is run in compliance with corporate law. This may mean additional administrative duties and paperwork compared to a sole trader.
For example, a director may have to complete their own annual tax return, as well as their company’s annual Corporation Tax return and accounts.
Get expert advice today
It’s important not to rush into major business decisions. For help and advice on incorporation, get in touch with our expert company formation team today.