5 reasons for forming a limited company

Share this post

A limited company (LC) is a general form of incorporation which limits the amount of liability exercised by the shareholders of the company. It refers to a legal arrangement that guarantees that the liability of members of the group of subscribers is limited by contributions or obligations to their interest in the company. A limited corporation is a human being in a legal context.

The naming convention for this type of corporate structure is generally used in the United Kingdom, where the abbreviated "Ltd" fits the name of a company. Limited companies come in many types in the United States, including the Limited Liability Corporation (LLC). 

How does the limited company work?

It is notable, the corporation's assets and debts are separate from those of the shareholders in a limited company. Consequently, if the company experiences financial distress due to normal business activity, the shareholders' personal assets will not be at risk of being seized by creditors.

A limited partnership can be "share-limited" or "guaranteed-limited." When limited by shares, a company is owned by one or more shareholders and controlled by at least one director. Business is owned by one or more guarantors in a limited guarantee arrangement and managed by at least one managing director.

There are many reasons someone decides to form a Limited Company. We list 5 of them here:

Getting started fast and easy

Starting a limited company is now very simple and everything can be done online. The days of Companies House waiting weeks to process the paperwork are long gone: now you can start a limited company in just a few hours. What's more, incorporation costs are an allowable expense against corporation tax.

The Companies Act 2006, which became completely effective on 1 October 2009, made a range of reforms making it easier to operate a limited company. In the ongoing search for entrepreneurship, the government continues to look for ways to allow well-run enterprises the freedom to get on with business rather than administrative formalities.

Business format recognized – professional, reputable, and sometimes expected.

Although many businesses trade without forming a company for many years without problems and with no detrimental effect on their reputation, it is widely believed that having a limited status can have a positive effect on the way you are viewed by potential customers and providers. Some regard it as more professional than acting as a sole trader.

You may find that the company's creation gives your sales a boost that would otherwise not occur without that registered number.

Potential prestige and credibility

A private limited company can be formed to suggest that the company has permanence and is committed to effective and responsible management. It gives both suppliers and customers a sense of trust and many companies, especially bigger ones, are not going to deal with an entity that is not a limited company. Sole traders and partnerships will not necessarily have a unique name, whereas only one UK company with any particular name can ever be active. Once you have registered with Companies House, your new name is protected and none can use the same name or even a name that is too similar.

Structure and Fairness. Specific shares can be given to various shareholders. When you collect money, you can sell shares or re-structure that give more versatility than a sole trader.

Not only do you have a limited company to trade meaning you are protected and potentially considered more reputable; you also have flexibility when it comes to ownership. A sole trade is the property of their business and therefore takes all responsibility and all profit. You also add the opportunity to provide dividends, shares, rights, and opportunities when you register as a limited company.

Dormant companies can be set up

A business doesn't have to trade in order to survive. It could be inactive, meaning it has not made any 'major accounting transactions' during its fiscal year. This can be useful if you have a business idea and a name but not yet the time or money to grow it. When you register as a limited company you also add the opportunity to provide dividends, shares, rights, and opportunities to restructure. It can be said that Investment into a limited company is considered to be safer for the investor but also for the owners as their own assets are not at risk in the same way.

© 2020, RTRSupports Limited. All Rights Reserved.