Limited Company, is a company whose liability is limited. This type of company allows an entrepreneur to keep their own assets and finances separate from the business itself. It is an entity in its own right, which can be subject to legal action. This saves your private wealth in case of “getting in trouble”.
Advantages of trading as a Limited Company.
- Limited Liability – As mentioned above the Company’s shareholders will only be liable for any debt the company accrues according to the levels of their own investment and no more.
- Separate Entity – Due to its very nature, a limited company is deemed to be a separate legal entity from its owners. This has several advantages, including the fact that the company will exist beyond the life of its members.
- Taxation and Tax Advantages – Limited Companies are only taxed on their profits (usually at a rate of 20%) and as such are not subject to the higher (personal) tax rates.
- Claiming expenses – Such as petrol, home – office, etc. The costs are actually tax deductible to the company. Some restrictions apply.
- Ownership and Control – In the case of Private Limited Companies, the Directors are also usually the main shareholders of the Company. Decisions can be made quickly and easily.
- Company Name – an identity for your business. Useful for marketing purposes and promotion.
Disadvantages of Limited Company.
- Cost – You will have to pay for setting up a company, also accounting fees for Limited Companies are much higher than those of a Sole Trader, although with the right and fair help it should be affordable.
- Complex Accounts – There are more complex and restrictive rules governing the accounts and bookkeeping of Limited Companies than sole traders. It is advised to have a professional accountant to help you out, as it may be very time consuming if done on your own.
- Dilution of Powers – Due to the nature of Public Limited Companies, sometimes disputes will arise between Directors and Shareholders as their ideas of what is best for the company vary.