{"id":6289,"date":"2019-08-02T10:44:39","date_gmt":"2019-08-02T09:44:39","guid":{"rendered":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/?p=6289"},"modified":"2024-05-17T15:40:15","modified_gmt":"2024-05-17T14:40:15","slug":"what-are-the-advantages-of-a-limited-company","status":"publish","type":"post","link":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/what-are-the-advantages-of-a-limited-company\/","title":{"rendered":"What are the advantages of a limited company?"},"content":{"rendered":"
\n Last updated: 17 May 2024<\/strong>\n <\/div>\n \n

You may already be self-employed, running a small business as a sole trader, or evaluating options for a new business idea you have. Whatever stage you’re at, it is worth considering forming a\u00a0limited company. This type of business structure has several advantages attached to it \u2013 limited liability for company debts being the primary one.<\/p>\n

Limited liability<\/h3>\n

When operating as a limited by shares company, the financial liability of the owners (aka ‘shareholders’ or ‘members’) is limited to the nominal value of their shareholdings. Therefore, if a company issues 100\u00a0ordinary shares, each with a nominal value of \u00a31.00, the collective liability of the shareholders is limited to \u00a3100.<\/p>\n Our Fully Inclusive Package - the perfect way to form a company<\/span><\/a>\n \n

When operating a limited by guarantee company, however, the liability of the owners (aka ‘guarantors’ or ‘members\u2019) is limited to the amount they \u2019guarantee\u2019 to pay towards the company\u2019s debts, if required. This is because this type of limited liability company does not have shareholdings.<\/p>\n

In contrast to the limited company structure, sole traders and partners working within a\u00a0traditional partnership\u00a0are personally liable for all debts if the business gets into financial trouble.<\/p>\n

Tax efficiency<\/h3>\n

Tax efficiency is not far behind limited liability in terms of advantages. The likelihood is that you\u2019ll pay less personal tax as a director-shareholder of a limited company than you would as a sole trader or a partner within a traditional partnership.<\/p>\n

Whether you end up paying less tax or not, one thing is certain – you will enjoy greater flexibility in your tax planning with a limited company than you would operating as a sole trader. So, what\u2019s the fundamental difference?<\/p>\n 5 things you need to form a limited company<\/span><\/a>\n \n

In a nutshell, a sole trader pays Income Tax as well as Class 4 National Insurance contributions (NIC) on all taxable business profits. The rates of Income Tax<\/a> in England, Wales, and Northern Ireland are currently 20% (basic rate), 40% (higher rate), and 45% (additional rate). If you live in Scotland, you’ll pay Scottish Income Tax<\/a> rates instead.<\/p>\n

By contrast, limited companies pay Corporation Tax<\/a>\u00a0at 19% if they have annual profits of up to \u00a350,000; 25% if their annual profits are greater than \u00a3250,000; or ‘Marginal Relief<\/a>‘ rates between 19-25% if their annual profits are between \u00a350,000 and \u00a3250,000.<\/p>\n

Tax-efficient remuneration through a limited company<\/h4>\n

With regard to withdrawing money from a limited company, director-shareholders can do this in three ways:<\/p>\n