Limited Company - Good or Bad?

Limited company formation is something that a lot of people are considering when they start their own business. However, many people find themselves asking the same question over again: "Should I create a limited company?" The answer to this question depends entirely on your circumstances and what you want to achieve. Here's a breakdown of the pros and cons of limited company formation for beginners and for more experienced entrepreneurs.

If you're not familiar with the basics of a limited company, it's important to know that it's a type of company that does not have its own banking facilities or assets. It's therefore unable to issue loans or take on creditors. Limited companies can only purchase goods and services from other licensed companies - so it can't actually be a supplier itself. To work effectively, a limited company will need to obtain funds either through investors or loans, otherwise it will struggle to run the business.

However, the biggest draw-card of a limited company is that it can be legally recognised as a separate entity. Because the business has no assets, it won't be able to attract external debt and there's no legal requirement to offer shareholders shares. This means that the owners of a limited company are exempt from the usual corporate governance laws and can operate independently of a wide range of competitors, suppliers and partners.

There are a number of reasons why limited company formation is a good idea. One is that your company won't be subject to corporate governance laws like payroll tax and other financial obligations, which are designed to protect all shareholders from over-extending themselves. Instead, limited company formation eliminates these problems for you, so that you can concentrate on running your business.

On the other hand, limited company formation doesn't give you as much control over your business as some people may like. You don't have much room for manoeuvre when it comes to selecting your board of directors and members. Most companies also set the limits of your shareholding very early on in the process, so you'll be limited in terms of how much money you can invest in the business. A limited company can still operate, but it won't be quite as successful as a new company.

Limited company formation can also limit your ability to expand a business into other areas. If you want to take the business into a different industry altogether, you'll have to open a new company and start from scratch, albeit with a small initial investment. If you're planning to enter a new area, it's therefore a good idea to decide early on how much capital you'll be able to put into your business.

If you want to take your business overseas, you'll have to register your company with the relevant government authorities and that can take time. So, a limited company formation can limit your overseas ventures as well as restricting your mobility within the UK. Even with a limited company, there are some disadvantages, though. For example, when you're running your business as a limited company, you won't be able to claim benefits for it, unlike a company that operates as a sole trader.

However, a limited company can have its advantages as well as disadvantages. If you're keen to get the ball rolling with your business without the extra work, then you might consider creating a limited company. If you already have a business and wish to make some changes without the added burden of paperwork, then a new company is for you.

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