Reasons to Set a Company with Limited Liability
September 22, 2015
More and more business people all around the world choose the UK as a destination point for their companies’ registration. There are almost 3 million British companies with limited liability (LLCs) created by business people being preferred to entrepreneurship or partnership. The reasons for UK’s limited companies popularity are the following:
- Simplicity of the incorporation
A limited company can be easily registered and today it can register a company online. Now there is no need to be bothered with endless paperwork and multi-week waiting for resolution from Companies House and the company can be started within just several hours. It is also nice to know that benefit from avoiding the corporate tax exceeds the cost of registration. Moreover, with the adoption of the Companies Act 2006, which came into force on the 1st of October 2009, it became much easier to manage a company with limited liability. UK’s government keeps seeking ways to simplify formalities and to provide business entities with freedom in management and organization.
- Legal standing
LLC has a legal identity and is legally able to carry on any business activity which is necessary to gain yield from the name of the company but not from the name of director or shareholder. That also means that the company will not cease to exist in case of owner’s demise and directors as well as shareholders may be changed. There is officially established order of company’s termination. Legal standing of a limited company protects its employees according to the letter of the law.
- Limited liability
Owners of a limited company are partially responsible for its debts and are held liable for the amount of their own shares and for the unpaid amount on partly paid shares. Practically company owner’s liability is spread on the amount of shares and unsecured loans issued to the company. Owners of LLCs definitely avail of limited liability against sole proprietors and partnerships’ owners, who carry on unlimited liability being responsible for business’s debts with all the personal assets and property. A risk to be held liable for LLC’s debts can be clearly calculated and the chance to lose everything is minimal. But it doesn’t work when director and shareholder is one and the same person. If the company is not able to cover the debts, director carries on unlimited personal liability.
- Prestige and credibility
Companies with limited liability are considered to be reliable and to have efficient management and performance and it is much easier for such companies to win the trust of consumers and suppliers. It is a fact that many of large holdings and long existing companies will not deal with a business which is not registered as LLC. Therefore being registered as LLC enterprise gets access to numerous opportunities and options that otherwise would not be achievable. Name of the company is another important moment as it may become a widely recognized brand and entrepreneurs as well as partnerships are not protected from competitors who would take the same or similar name. But the name of UK’s LLC which is approved by Companies House cannot be copied. Moreover even similar name cannot be used by other businesses.
- Relief of the tax burden
Entrepreneurs and members of the partnership have to pay income tax which is higher than corporate tax levied on companies. Reduction of tax deductions is the first reason to register LLC. Besides, any company usually has to pay salary to workers as well as dividends to stockholders. Experienced business owners usually set a tax efficient balance between the amount of salary and the amount of dividends which they get as a reward for company’s success. In such a case while receiving a minimum salary, director has a chance to avoid paying certain insurance contributions and to avail of State benefits. Dividends are levied with a smaller amount of taxes and don’t fall under the insurance deductions. However stockholders’ income is a subject to corporation tax. Companies also have opportunity to avail of various tax and other deductions reliefs. Some tax deductible business expenses and allowances can be reimbursed against company’s income.To get more clarity on the issue it is better to take tax advice or to speak to financial expert.
- Benefits for the retirement
Pension contributions are usually made by the company and this amount is usually a tax deductible expense for it while an individual funds pension from a taxed income. While the company pays pension contributions it has the opportunity to gain corporation tax relief. So employees of the company don’t pay taxes on their pension deductions and pension contributions don’t have to cover National Insurance for both employers and employees.
- Extended fundraising options
There is a good option for companies to raise capital by issuing and selling shares while sole proprietors and members of partnerships are called upon investing personal capital. Shares issued by a company may be sold to existing owners or to attracted investors. But only public limited companies can place shares on the public stock exchange. Certain classes of shares may offer shareholders various abilities to take part in management of a company, receive dividends and get money in case of company’s liquidation. It is also possible to preserve control over the company for main owners while new investors are attracted that is determined by the way the company is established. A company may also avail of taking a loan from a bank to develop business enjoying reasonable rates and beneficial terms while loans provided to sole proprietorships and partnerships have higher rates and stricter rules. Besides, shareholders don’t secure loans on the name of the company with personal assets or property.
- Opportunity to set a dormant company
If a company does not carry on any financial activity during a reporting year it may exist for some period of time. If you don’t have enough capital to start business activity you may still register company if you have a good name and idea. In such a case you need to pass through incorporation process and to keep some periodical formalities so that the company would stay on the register for a long time.
- Quitting business activity
It is much easier to quit business activity if you own a limited company rather than if you have an entrepreneurship. You can just sell your shares or sell the company if you own the controlling stake. As result you will have enough money to change your life or to launch a new business idea.
- Personal choice
Whether to incorporate an LLC also depends on personal preference because running a company is not as same as running a small business. If you are ready to set up company, to reach new sales markets and to gain higher income than registering a company is what would make it possible in the most efficient way. There are many holdings which grew from small limited liabilities. In many ways formation of company is advantageous for those who have long-lasting business ideas and are going to develop and extend their companies. Although today it is very easy to register an LLC, running the company may be more complicated and business owners should be prepared to the fact that such a business structure will demand more experience, knowledge and patience. If you are interested in starting a limited company, turn to our team of experts to get assistance on the issue.