Why set up a limited company?

The quickest and easiest way to start up in business is to become a sole trader. There is very little red tape, not too many financial regulations (although you still need to keep proper records and pay your taxes) and you can administer the business as you see fit.

At Lewis Smith & Co. we often get asked by sole traders whether they should take the next step and set up as a limited company. There always seems to be some reluctance because it sounds more complicated or expensive than the way they normally operate.

In fact there are some big advantages to taking up limited company status. This list of pointers will give you a better understanding of whether you should make the decision to become incorporated.

  • The most compelling reason to go limited is the opportunity to reduce your tax bill. As a sole trader or partner you could be paying income tax at the 40% rate. Shareholder directors can be remunerated through a combination of income and dividend payments based on company profit. The starting rate of Corporation Tax on profits is only 21%.
  • The ability to be paid through dividends also reduces overall National Insurance payments.
  • A limited company offers directors a more tax efficient way of making pension payments for themselves and employees.
  • There is more paperwork involved in running a limited company but most of it is quite routine. Your business accounts need to be more detailed, which means that using an accountant is probably a good idea, but you don’t need a full audit until your turnover reaches £5.6 million.
  • You only need to have one shareholder, who can also be a director, to start your company.
  • Sole traders have a personal responsibility for business debts. The directors of a limited company are not personally liable unless they trade when insolvent.
  • Creating a formal company gives you a legal and financial structure that makes it much easier to bring new people into the business (by appointing directors) or to take over other businesses
  • Your incorporated status raises your profile and adds to your credibility in the marketplace. Some organisations (particularly in the public sector) find it difficult to work with sole traders.
  • Lewis Smith & Co. can set up a limited company for you from as little as £250 + VAT, ready to trade.

If you are thinking about setting up a limited company then we can take you through what’s required and how you might benefit in a free, confidential discussion. Just give Lewis Smith & Co. a call on 01384 235549.

Lewis Smith & Co. – helping businesses in Dudley, Wolverhampton and Stourbridge to grow.