A limited company is most popular business
models for all sizes of organisations. This is due to the many
benefits it provides over other types of legal business structures.
Whether you choose to register a commercial company limited by
shares or a non-profit company limited by guarantee, there are a
number of perks that far surpass those available to the sole trader
or contractor working through an umbrella company.
Used by profit-making enterprises and
Owned by one or more people known as
'shareholders', or 'members'.
Day-to-day operations managed by one
or more people known as 'directors'.
Company is dividend into shares, each
of which represents a percentage of the business.
Members receive a proportion of
profits in relation to their percentage of ownership.
Liability of members is restricted to
the nominal value of their shares.
Limited by guarantee
Used by non-profit enterprises and
Owned by one of more people known as
'guarantors', or 'members'.
Managed by directors.
No shares or shareholders.
Members do not usually receive any
sare of profits.
Liability of members restricted to
the nominal value of their guarantees.
Top 7 Reasons to Register limited company.
1. Minimising personal liability
Limited liability is one of the
biggest benefits of running a business as a limited company.
Protecting your personal assets is crucial if you plan to operate
in the public domain or provide high value supply or services that
could potentially lead to liability claims and put your home and
finances at risk.
If your business is unable to pay its creditors or is faced with
legal claims for damages, you will only have to contribute the
nominal value of your unpaid shares or guarantee. Most shares and
guarantees have a nominal value of £1 each. Beyond the limit
of member liability, the business itself is wholly responsible.
2. Professional status
Limited status could significantly boost the perceived value of
your business, thus attracting more clients and investors. Many
large corporations refuse to award contracts to sole traders,
instead choosing to deal exclusively with other limited companies.
This is because they are held in higher regard.
3. Tax efficiency and planning
Limited companies pay 20% Corporation tax on profits, as opposed
to 20-45% Income Tax paid on sole trader profits. This offers
greater flexibility for tax planning.
Reinvesting surplus cash
Rather than withdrawing all available profits each year and paying
more personal tax on top of your Corporation Tax liability, you can
retain surplus income in the business to pay for future operational
costs and growth. This makes more sense than withdrawing all
profits, paying Income Tax and reinvesting your own finances when
the business needs additional capital.
Deferring personal income
You can defer the withdrawal of profits to a later tax year in
which a lower rate of business or personal tax tax is due. This is
an efficient strategy if the withdrawal of all available profits
would take you into a higher Income Tax or Dividend Tax
4. Higher personal remuneration
As a director and shareholder, you can keep your income below
higher tax rate thresholds and reduce your National Insurance
Contributions by issuing your take-home pay as a combination of a
salary and dividends. This strategy will enable you to avoid
entering the higher and additional Income Tax brackets
5 . Separate legal identity
Unlike the sole trader structure, a limited company is a legal
'person' in its own right, with an entirely separate
identity from its owners and directors. As a result, companies can
enter into contracts in their own name and are responsible for
their own debts and liabilities.
The owners are only liable for the value of their unpaid shares or
personal guarantees, rather than the full extent of the
company's liabilities. If a company becomes insolvent, it is
the business itself which is declared bankrupt, not the
shareholders or directors
Furthermore, this means that companies enjoy perpetual succession
and survive the death or ownership of the original shareholders or
guarantors. The business can be sold or transferred to other people
at any time, thus enabling the company to continue to exist with
minimal disruption to clients and employees.
6. Credibility and trust
By operating as a limited company, potential clients will assume
your business is bigger and more established than it may be in
reality. This professional, corporate image will add valuable
prestige and credibility to your business. Potential clients,
suppliers and investors are also more likely to trust your
Image is important and can drastically improve your competitive
advantage when bidding for valuable contracts, particularly if you
provide high-risk services in the financial, IT or construction
7. Investment and lending opportunities
Companies can have multiple owners, so it is possible to raise
additional capital by selling portions ('shares') in the
business to new investors. Generally, companies also have more
lending opportunities than sole traders, and certain banks will
only lend to incorporated businesses. Furthermore, it is often
possible to secure a loan for a company without the need for
shareholders or directors to provide security against their own
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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