Limited Company Vs. Sole Trade / Partnership

Should we incorporate?

This is one of the most frequently asked questions by owner managed businesses.  It is also a question which needs considering from more than one angle before it is answered.

From a marketing point of view limited company status provides an excellent platform to drive the business on to the next level of growth and achieve a greater share of its market.  Public perception of the size and credibility of a limited company may also give a competitive advantage over unincorporated rivals when attracting not only customers, but employees and suppliers too.

Once a limited company has been formed a separate legal entity exists.  As a consequence the company has its own assets and liabilities which are not shared by the directors and thus limiting their liability to any shares they hold in the company.  This does not however eradicate their responsibility for the company and its trading activities.

Profits generated by the limited company’s trading activity can be extracted in a number of different ways.  Careful consideration needs to be given to profit extraction before any restructuring of the business takes place.  Salary, bonus and dividend payments each hold their own tax advantages depending on the circumstances surrounding the individual and the company.

The compliance requirements are somewhat greater for a limited company than those of a sole trader or partnership.  As the company is registered at companies house, abbreviated accounts must be filed online and available to the public.  HMRC will also require a full set of accounts along with the company’s self-assessment tax return.

If you are considering incorporation or other forms of restructuring for your business and would like talk about the options available, please call Judith on 07817 046096 or email judith@jsaccountancy.co.uk or use the contact us form by clicking here.