Why entrepreneurs start business as a private limited company? You can start a business as a sole trader, register an LLP and all manner of other formats. By far the most popular set-up for a new entrepreneur, though, is the traditional limited company. If you are thinking of registering a private company, Coddan is here to help. There are a number of advantages to the limited company approach, which is why it is still popular as a business vehicle. Firstly, it can be set up within hours with just your name, your company name and an address, so it is relatively simple to action with Companies House.
The second major advantage is that registration of a limited company in Liverpool protects your personal assets and separates them from the business. The shareholders, which can be just you, will only be liable for the debt the company accrues according to the levels of their own investment and no more. If the private company is wound up then, providing there hasn't been any negligence or criminal implications, you cannot be pursued personally for the company's debts. A limited company is, then, a rather large safety net that makes many people feel safer going into business.
With a wider range of expenses to claim against through a limited company, you can claim back accountancy fees, equipment, software, phones, travel expenses, internet and more. You can also reclaim VAT that previously disappeared into the business void. There is a great deal more paperwork involved to make sure your VAT records are correct, but the ability to reclaim VAT is a significant factor in many people’s decision to form a limited company. If you want to register a company limited by shares and apply for the VAT registration straight away, please check our business incorporation forms, you are allowed to form a company with VAT registration number at the same time!
There are other advantages, too, including protection of your business name. Once your business name is registered then it protected and nobody can trade under a similar name. This is a minor point for most people, but it is still an advantage of the limited company.
Credibility is another issue, as full ownership of a limited company gives the impression of a more established business. This is a perspective issue, and does not really stand up to close scrutiny, but it is still true that a limited company is generally more trusted than a sole trader.
Perhaps the biggest incentive of all is that a limited company allows for advanced tax planning that helps most people take a higher rate of pay than they would under sole trader conditions. National Insurance Contributions can be minimised with the use of dividend payouts that are taxed at a rate of 10% rather than the 20% applied to earnings and 40% at the higher rate.
Other advantages include effective tax planning by using a personal car for business purposes, which means you can charge mileage accrued on business to the travel to the company and you can benefit from tax free fuel. You can even claim back for the cost of using a room in your house as an office if the company limited by shares is starting small.