A limited company is a business structure that separates you from the liability of your personal assets. It also allows for different levels of investment. Starting up this form of entity can be challenging; there are several steps involved in getting it set up correctly, including choosing your company name and appointing accountants to take some stress off your shoulders when doing annual filings, starting marketing & branding efforts etc. A limited company is a separate legal entity from its shareholders. That means that the company can enter into contracts, incur debts and obligations, sue and be sued in its own name. There are advantages and disadvantages to starting up your own limited company.
What do you need to consider when starting up the company?
The company name is a crucial consideration – it’s essential to choose something that reflects your business and is easily searchable. You’ll also need to think about the company’s structure, how you want to raise money from shareholders, and what type of legal contracts the company will enter into.
What are your advantages when starting up a limited company?
- The company can raise money from shareholders.
- It has a separate legal personality that protects the shareholders and directors from personal liability, and there is more flexibility in terms of how profits can be shared.
- Another advantage is that companies can offer shares as well as salaries to employees, so it’s easier to attract talent.
- There are tax advantages when it comes to limited companies.
What are your disadvantages?
- The company may also be subject to audit by HMRC, and the costs of setting up the company may be expensive.
- One disadvantage is that you will need to keep detailed records and accounts because the business’s financial performance could affect taxation, creditworthiness, or ability to raise finance for expansion. This means keeping accounting records will take some time away from running your business which might not seem like much, but over time it adds up. Therefore, it is vital to appoint accountants to take the stress off your shoulders when it comes to handling accounting for limited companies.
- Another downside is that there are more regulations to follow; whether this applies depends on how big your company becomes, so it’s good to know what they all are before getting started in case any changes occur down the road.
Advantages and disadvantages of having one or more directors
One important thing to consider is whether you want one, two or three directors. A company needs at least one director who can act as the company’s representative. The advantages of having just one are that it’s easy, and there will be less paperwork involved in setting up your company, but this could also mean cutting out an essential perspective if it is only you doing all the work! The advantages of having more than one director include empowering other people within your business. Hence, they feel included, which helps them with motivation, decision-making, and taking responsibility for what happens. Moreover, if things go wrong, multiple directors can sort out problems together instead of everything falling on a single person’s shoulders. On top of that, it might help attract investors because even though they are taking on more risk by investing in a company with multiple directors, they know that more than one person can make decisions.
In conclusion, choosing to set up a limited company is just one of the many decisions small business owners have to make. There are advantages and disadvantages to doing this, so you must consider what they could be before making your final decision.
Image Credits: Alexander Suhorucov