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Advantages Of Forming A UK Limited Company

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  • Curtis Stilson
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      Advantages Of Forming A UK Limited Company

      Article Description:
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      When starting a business there will often be a point when you
      think of forming your business into a limited company � perhaps
      before you collect a penny. So why should UK businesses look at
      limited company formation?


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      1094 Words; formatted to 65 Characters per Line
      Distribution Date and Time: 2007-08-10 11:12:00

      Written By: Curtis Stilson
      Copyright: 2007
      Contact Email: mailto:curtis.stilson@...



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      Advantages Of Forming A UK Limited Company
      Copyright (c) 2007 Curtis Stilson
      Novik Ltd.
      http://www.accounting-on-line.com



      When starting a business there will often be a point when you
      think of forming your business into a limited company � perhaps
      before you collect a penny. So why should UK businesses look at
      limited company formation?

      Limited Liability

      If the business fails then the debts don't follow the business
      founders. This can be limited in big loans by the practice of
      most banks insisting on small companies backing up loans with the
      assets of their directors � often asking for director's homes to
      act as collateral for business loans. However this will not apply
      to all debts. This can be especially useful for a start up
      business in a higher risk sector.

      Legal Damages for Employee Actions

      If you find that one of your colleagues has put you in a position
      where you are liable for legal damages the difference between a
      limited company and being a sole trader becomes key. If you were
      self employed and taking on staff, then you would be liable for
      your employees' actions� even if you specifically forbid them.
      If you operate as a company then the company will be the employer
      and you will be liable to the extent that you are directly
      responsible.

      Raising Capital

      A UK limited company can give you another vehicle for raising
      capital. You can sell shares in your company without losing
      control. The investors will be willing to share the risks with
      you in return for a bigger share of the reward. Loan finance has
      its place but equity finance can be a better option for a new
      start up business, especially in a high risk industry.

      Tax Rates

      In most, although not all, cases a company will benefit from a
      lower rate of Corporation Tax compared to the rate of Income Tax
      in the UK. For example if you were earning �15,000 you would find
      that you would be paying just short of �2000, while in a company
      - if you were also paying yourself a �5000 salary you could get
      away with paying almost no income tax. You also have some ability
      to take out your profits as dividends (as does your spouse) which
      are effectively tax free for people who are not paying tax at the
      higher rate.

      There are disadvantages � for example losses can be harder to
      offset against your other income and sometimes the corporate tax
      rate may be poor compared to the personal tax rate. You also may
      find that corporate tax rates may be targeted by a future
      Chancellor of the Exchequer as the tax advantages are becoming
      quite widely known. If tax is an element in your decision to set
      up a company then we would recommend that you see an accountant
      first.

      Accountability

      Although company directors often � with some justification �
      complain about the red tape from regulations that result from
      limited company formation in the UK there is some real value that
      comes out of the discipline of reporting that the regulations
      force on you. It means that you meet with your investors at
      regular intervals, that a decent set of accounts monitors your
      progress and that in some cases you will bring in an auditor to
      check that your understanding of the business is correct. What we
      usually find is that these disciplines find problems at an
      earlier and more manageable stage than otherwise, even if they
      appear to be a real pain at the time.

      Business Continuity

      In small family businesses it is often very hard to decide when
      to hand over the reins to the next generation. Although you can
      give your children a large amount of responsibility in the
      business, the ultimate control can be very much an all or nothing
      affair. The ability to split capital that is available to a
      company can become very useful here. Control can be gradually
      given to your children through a gradual release of shares. The
      ability to gradually release shares also means that inheritance
      taxes can be planned for more effectively, and you also have a
      new way in which to collect income from your business while
      allowing day to day running � and control to pass to others.

      Selling the Business

      Because a company can legally last for ever then it is much
      easier to sell a business � or part of a business � in a limited
      company to a new owner. As all your creditors and debtors will
      have signed their contracts with your company then they will see
      no change, or awkward contractual clauses. Similarly your
      employees will still be working for the same employee that they
      were the day before � it's just the owner of that employer who
      has changed. If it is simpler and more transparent to buy a
      business � then that business will attract a higher price.

      Legitimacy

      A limited liability company is often seen as a more stable entity
      than a sole trader. This is often only a matter of image, but it
      is a potent fact in business life today. Whether it is trade
      creditors, banks, the taxman or most importantly customers � the
      three letters "ltd." can have a magic effect out of all
      proportion to its actual significance. They probably have that
      same magic effect on you.

      Employee Motivation and Retention

      A sole trader often faces the cruel problem of how to motivate
      his or her key employees. They work hard for you, and you will be
      in real trouble if you lose them, but sometimes extra wages or
      even bonuses don't seem to motivate them in the same way that
      extra profits motivate you. Running a company can deal with this
      situation by allowing you to give small � or large � chunks of
      your business to your employees. You may offer to sell some of
      the stock, or offer options or even give it as a bonus. You
      don't just motivate and retain your key staff � you also get
      them to see the company as their company, and to see it through
      your eyes.

      Next Steps

      There is a hard way and an easy way to starting your own company.
      The hard way is to get all the relevant documents and forms, fill
      them in (without any mistakes) and send them off with the correct
      fees to Companies House. The more pleasant � and less time
      consuming � method of limited company formation in the UK is to
      retain us, give us the important details and let us draw up the
      documentation. We look forward to doing business with you.




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      Copyright (c) 2007, Novik Ltd.
      Article written by Curtis Stilson.
      We are happy to assist you professionally
      with start up a business in the UK including
      company formation UK and accountant UK.
      http://www.accounting-on-line.com



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