Company formations

The Benefits Of Forming A Limited Company

You may be considering whether or not to form a limited company, either for your start up or because you have been trading as a sole trader for a period of time and are considering switching to limited liability. If you are a sole trader you will have the burden of knowing that you may lose your own property if something goes wrong with your business, and this liability is unlimited.

Limited Liability

One of the main reasons why people incorporate limited companies is because of the reduced risk to individual directors’ and shareholders’ personal assets if the company fails. Even if the company goes into receivership, or is wound up, you will not lose your assets. However, it is worth noting that in order to benefit from limited liability, you must operate the company within the law and in accordance with the provisions in the Companies Act.

Increased Confidence

Customers and suppliers  of limited companies often feel more confident if they are dealing with a limited company, which gives the business a generally more professional appearance. It is fair to say that some larger businesses prefer not to have to deal with sole traders or other unincorporated entities, so forming a limited company could in fact mean that you gain more – and better – business.

Costs of Running A Limited Company

Although there is a common perception that there are considerably increased costs in running a limited company, the reality is that the difference may not be that noticeable. Your accountancy fees may go up, but changes to company law in recent years have resulted in the accountancy and taxation costs in running a limited company have significantly reduced. Add to this the changes that have been made to Corporation Tax, and the increased administration that comes with running a limited company begins to look like a small price to pay.

Dormant Companies

It is also possible to incorporate a company at Companies House and not to trade through it. This means that the company is ‘dormant’ until such time as you decide to begin trading through it. There is no obligation ever to begin trading, but having a dormant company means you must file dormant company accounts each year, like other companies, and must also file an annual return.

Incorporating For Future Use

If you do decide to incorporate a company at Companies House, you can do so relatively cheaply – either with or without a formation agent. One benefit of this is that you ensure that no one else is able to take the company name for themselves. Although it does not give you any rights to use the business name, it does mean that you have exclusive right to use the business name if you choose to at some point in the future. Often people do this in anticipation of expansion of their existing businesses, or in the event that they branch into other areas.

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