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What are the advantages of a limited liability company (Ltd.)?

Being self-employed may be the most suitable business model for many small entrepreneurs, but creating a business as a limited liability company has definite advantages.

The latest statistics from Companies House show that more than 4 million such companies are established in the UK, of which around 93% are active.

In this article, we will list some of the main reasons why a limited company may be a better choice than working as a freelancer.

Security provided by limited liability

Since 1897, the law states that a joint-stock company is an independent legal entity, legally separated from the persons who founded it. This means that third parties, such as customers or suppliers, enter into commercial contracts with the company as an entity and not individually with its director, employees, or shareholders.

The main advantage of this status is that if you run a limited company, your liability for its debts is limited to the, often symbolic, amount you paid for your shares or the amount you lent to your company. So, if the company runs into trouble or becomes insolvent, you won’t be personally responsible for its financial losses.

An exception is when the company’s creditors lose money due to willful fraud, for which the director is responsible. In this case, personal liability is not limited as it is an offence that will also result in criminal liability. One of the more common problems in e-commerce is the use of trademarks, as it is not uncommon for merchants to break the law without realizing it, in which case a limited liability company status will protect your personal assets.

Meanwhile, self-employed legal status does not protect against financial claims in the event of failure, as the self-employed person and their business are treated as one entity for tax and administration purposes. Their a priori personal liability for personal business debts is conditionally unlimited and, in certain circumstances, personal real estate can also be seized by the bailiffs.

Social Security and taxes

Even if you are a director of an Ltd company but earn a small salary and your actual income comes from dividends, you will still be entitled to state benefits without paying your employer or employee National Insurance (NIC). Dividends are subject to lower taxes than wages and are exempt from social security contributions.

With a limited liability company, net wages are higher, but the dividend taxation system changes, meaning that the shareholders’ taxes become higher.

Reputation and greater trust

Reputation in business is very important, and a limited liability company is, by many criteria, a more trustworthy form of entity that will give confidence to customers when starting a business.

It is worth knowing that some clients – especially large corporations and businesses operating in the financial sector – only work with limited liability companies. So having a Ltd. company will give you new business opportunities that you may not have had before.

Registration of a limited liability company

The answer is likely wrong if you ask most people what they think about setting up a limited company. It’s generally considered a bureaucratic roadblock, taking months to set up and costing thousands of pounds. However, in reality, a UK Ltd type of company can be registered in a few hours and with almost no share capital, and it doesn’t matter whether you live in the UK or anywhere else in the world.

Easier to get financing

A legal entity separated from the physical founder of a Ltd. company can get financing a little easier than a self-employed person. In addition, companies can raise additional capital by issuing new shares to potential shareholders and new private investors (public distribution of shares, e.g. through stock exchanges, is allowed only for public companies).

Future business name protection

When you register your company with Companies House (or use our service), your company name will be legally protected, meaning there can only be one company with that name in the UK.

Such a company has even more advantages. Let’s say you already have a business idea and even a name, but you don’t have the time or capital to develop it. Instead of completely abandoning your idea, you can establish a dormant company whose legal existence would already protect your brand.

From the perspective of HMRC and Companies House, the UK’s tax authorities and registries, such companies are inactive, do not trade or provide services and do not carry out significant accounting transactions or incur financial losses during the financial year. Even an inactive registered company can protect your future interests and allow you to start operating anytime.

Meanwhile, when self-employed, your legal status will not protect your business name. Therefore, unscrupulous people can take advantage of the name of your business and even do harm to it in some way, causing stress and inconvenience due to the misuse of your chosen brand name, which can cause you to lose your hard-earned reputation.

More effortless sale/transfer of business ownership

Everything is simpler. If you want to close your business, sell your stake. It is much easier for a Ltd company to transfer ownership of its limited liability company than in other cases. Figuratively speaking, the equipment and all other company assets can be packed in bags and sold.

As a freelancer, this can be problematic, as the equipment used in the business is usually owned by you personally, and many elements of the business are tied to your specific identity (e.g. clients may not want a plumber other than yourself).

So, what to expect?

If we have interested you in the advantages of limited liability and you would like to create a limited liability company for your business, we will happily explain the whole process to you. Of course, a limited liability company will not suit everyone, but its advantages are attractive. If you are interested in this opportunity – we are waiting to hear from you!

Application form. We invite you to register for the service to initiate the process. Register

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