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Why should you create a limited company

Updated: Feb 11, 2023

Someone might create a limited company for a number of reasons. Limited companies provide liability protection for their owners, meaning that the company's creditors cannot pursue the owners for payment in the event of the company's insolvency. Additionally, limited companies often enjoy lower tax rates on profits than other forms of business. Furthermore, limited companies can raise capital more easily than sole traders or partnerships, making them attractive to investors. Finally, limited companies often provide more credibility and trustworthiness than other forms of business, making them more attractive to customers.


Advantages


The primary advantage of forming a limited company is the limited liability protection it provides to its owners. This means that the company's creditors cannot pursue the owners for payment in the event of the company's insolvency. Additionally, limited companies often enjoy lower tax rates on profits than other forms of business. Furthermore, limited companies can raise capital more easily than sole traders or partnerships, making them attractive to investors. Finally, limited companies often provide more credibility and trustworthiness than other forms of business, making them more attractive to customers.

Disadvantages


The primary disadvantage of forming a limited company is the extra paperwork and compliance requirements they are subject to. Limited companies are required to file annual accounts, have an audit if required, and file annual returns with Companies House. Additionally, limited companies must pay Corporation Tax on their profits and have more stringent rules about how the company is managed and kept up to date. Finally, limited companies are more expensive to set up and run than other forms of business.


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