- PTA
What are the Advantages and Disadvantages of a Limited liability Company?
Entrepreneurs often do not know which business to act as a sole proprietorship, partnership, or limited liability company. Regardless of size, ownership structure, industry, etc., there is generally no legal requirement to trade through a particular company, but they have notable differences. And it is the impact of these differences that must be assessed when deciding which company to operate on.
In this article, we take a look at the pros and cons of dealing with a limited liability company and reflect on recent changes in income taxes and social security rates in the UK.
Advantages of Limited Liability Company
Express
Seeing "limited" at the end of a business name adds prestige and creates the illusion that the company is excellent.
Company Name
As long as the company remains registered in the commercial register, no other company may be established with the same name. It may also request other companies incorporated later to change their name if it is too similar to the one you choose.
Investors
Investors prefer to invest their money in a company rather than a sole proprietorship or limited company because when they buy shares, their investment is better protected, and their liability is limited to their participation (in case of problems and bankruptcy of the company). This allows public companies to offer greater security to investors.
Bank Financing
Banks tend to prefer doing business with corporations, again for reasons similar to those of individual investors. In addition, they have the option of stipulating additional guarantees by depositing a "variable charge" on the company's assets. The commission means that the bank will get the goods specified in the commission first in the loan terms etc.
Shareholder Succession
The transfer of shares in a limited company is more accessible to administer than the transfer of a partner's claims in a partnership. The main hurdle would be an unusual restriction on the company charter or a shareholders agreement.
Tax Reduction
Some expenses, which obviously would not be allowed in a company without legal personality, can give tax relief in a limited company. Some examples are, under certain conditions, training costs and pension contributions.
Effective Tax Rates
The compensation package for small business shareholders generally consists of a small salary (high enough to ensure they get a qualifying year for government benefits) and dividends. Dividends are cheap because they do not attract Social Security and are taxed at a lower income tax rate than income from self-employment.
Disadvantages of a Limited liability Company
Administrative Burden
Company directors and shareholders may be required to file income tax returns, and the company has its reporting requirements. You must file your income tax return and annual accounts, as well as a yearly return. If the directors are paid a salary, the company may also need to prepare a plan for the employer and then complete an annual employer statement.
Directors' Responsibility
Directors are personally responsible for delivering legal documents to Companies House, and failure to provide them may constitute an offense in addition to late filing penalties.
Bank Financing
Suppose I think that it is more accessible for companies to obtain finance. In that case, it should be noted that the banks are demanding souvenirs of personnel guarantees from managers, which means that they will continue to manage their details. Business.
Less Privacy
Company data and accounts are kept in a public record and therefore can be viewed by anyone. In addition, information on company directors, company secretaries, and shareholders can be accessed, albeit in a limited way.
Accounting Fees
Due to reporting requirements, accounting costs are typically higher for corporations than for unregistered corporations.
Separate Legal Person
In the case of an unincorporated company, the owners are free to make withdrawals without tax consequences. However, this is not the case in the situation of a company, and directors and shareholders can often find it difficult to distinguish between the company and their company.
Mixed-Use
An unincorporated business that owns mixed-use assets or spends them for personal and personal use is relatively easy to manage in terms of tax treatment and disclosure. However, such positions in a limited partnership can result in additional tax burdens, employer insurance, and reporting requirements.
Losses
Losses suffered by a distributor or individual partner are much more malleable than if a company generated them. For example, they can be carried forward (possibly up to three years for new business), carried over, or offset by a company surplus. Values Generated by the company. Owner. The company can only use losses realized by a company.