When you start out in business there are a few options that you have available as to how you can trade.
The business can trade as a sole trader, partnership, limited liability partnership or a limited company.
They all have their pros and cons.
In this article I will just look at the main advantages of trading as a limited company or Ltd as it is also known.
There are many compelling reasons as to why one should choose to set up their business activities through a limited company structure:
Indeed, they can create a floating charge on their current assets to raise funds.
However, in this economic climate any borrowing by limited companies is likely to require personal guarantees by the directors.
The business can trade as a sole trader, partnership, limited liability partnership or a limited company.
They all have their pros and cons.
In this article I will just look at the main advantages of trading as a limited company or Ltd as it is also known.
There are many compelling reasons as to why one should choose to set up their business activities through a limited company structure:
- The shareholders of a limited company have limited liability for the debts of the company.
Therefore, if the business fails they can only lose their investment.
Indeed, if you trade as a sole trader or a standard partnership, the owners of those businesses can be pursued personally for additional amounts owed if the business fails. - As a Ltd company is seen as a separate legal entity to that of its owners you can continue to trade despite the death or resignation of certain shareholders.
- It is far easier to give part ownership of the business if it trades as a limited company, through the issue or transfer of shares to other individuals.
For instance, you may wish to reward an employee for their service and give them shares as an incentive. - Suppliers and customers generally perceive that a limited company has more credibility than the other trading structures.
This impression of increased respectability could lead to a competitive advantage. - Limited companies sometimes have more flexibility on the amount and types of tax they and their owners pay, depending on how money is taken out of the business.
For example, if it is a one man limited company, where the main shareholder is also a working director for the company, they can take money out of the business as a salary or a dividend; the tax consequences of these two methods are different and thus this flexibility gives the director some control over what taxes he and the company pay.
Indeed, they can create a floating charge on their current assets to raise funds.
However, in this economic climate any borrowing by limited companies is likely to require personal guarantees by the directors.
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