Many business owners that have started their own company have to decide whether or not to incorporate their business. In simple terms, this is the process of legally registering a business as a limited company. What used to be a lengthy process of filing legal paperwork is now a simple process that can be performed online. Some businesses can be fully set up and incorporated in just a matter of hours. While this may not seem like an essential step for some smaller businesses, there are some distinct advantages to be gained.
So what are the benefits of setting up or converting your business to a limited company?
Limited personal liability
One of the biggest advantages of incorporating a business is that it limits the personal and financial liability of the owners. Should you find yourself on the wrong end of a legal battle or an insurance claim the financial responsibility lies with the company and not you personally. This means that personal finances and assets like your home are protected from legal proceedings. Many businesses incorporate for this sole reason to ensure that they have the legal protection of personal assets.
Separate legal identity
Along with limiting personal financial obligation, having a business that is an entity in its own right also provides some other benefits. Companies that are set up this way can continue to operate in the event of losing a business owner, or should shareholders or directors change over time. Even if these changes occur, the company will only cease to exists if it is formally dissolved via the legal process.
Tax and pension benefits
Incorporating a business means that there are certain tax benefits available that may not be accessible to other business structures. Limited companies pay corporation tax and not income tax as with other company formats. It can pay dividends to its shareholders as well as salary payments, allowing compensation to be the most tax-efficient mix of both payment types. There are a range of allowances and tax-deductible costs specifically for limited companies that can be used to offset business expenses.
Business credibility and professionalism
Having a limited company can position the business in a more favourable light than being an unincorporated business. It can instill a sense of confidence in customers as provide an assurance that the organization is a permanent and professional outfit, and not a fly-by-night operation. Taking the legal steps needed to become incorporated means that no one else can incorporate using the same business name. Once registered your company name is protected and can only be used by you.
Capital investment opportunity
There may come a time when you need to raise funds or capital for your business. Possible opportunities for expansion or business growth can lead to needing some money injected into the business. Limited companies have the option of raising additional cash by issuing new shares for the company that may be purchased. Sole traders and partnerships have to raise capital from their own efforts and the option of selling shares is not available without the business being incorporated.
Conclusion
Making the decision to incorporate your business can sometimes simply come down to personal preference. However, it is wise to consult an accountant or tax professional to review your particular circumstance and help you decide on the best course of action. The legal protection and tax benefits that can be gained from becoming a limited company might improve your financial position, so it is best to have all of the facts at hand before making a decision.
Contact ATF Accountancy today and discuss your options with an experienced tax professional. Also you can check our company formation services to find out more.
