5 reasons to be a limited company
Jul 21, 2020
Should I be a limited company? I get asked this a lot, and the answer is it depends on your business and personal setup.
But in general, it is because of 5 key things:
1. Liability insurance
2. Employing people
3. Business partner
4. Tax & control of income
5. You want to be seen as a bigger business than you are.
Liability
Liability is a critical one. If you have insurance of any kind and you are a sole trader, if the insurance is inadequate, you are liable for your personal assets (house, car etc). So make sure you have adequate insurance cover especially if you are a sole trader. It’s the main reason I am a limited company, to protect me professionally.
Payroll
If you are employing people a limited company gives you a legal framework to work with and keeps your business from mixing with your personal situation.
Being in business with someone else
If you are in business with someone else, you want to know how the profits are split, and how it would be divided if you ended the business relationship (which happens often, and can be amicable).
Again, it separates it from the personal, and makes clear what is business property and assets, and what are personal.
Tax and control of income
Being able to control how much you pay yourself and reduce your tax is often why you might become limited, but this is definitely one for your own individual circumstances (if you are paying yourself over £30k you should consider this).
You can also control how much you pay yourself, in order to be able to claim things like child benefit or keep under the personal allowance threshold (£100k!).
Being seen as a bigger business
Sometimes there is a feeling that you are bigger than you are if you are limited, but this may be a myth. Some businesses like to do business with other limited companies, but honestly, there isn’t any difference if it is just you.
There is also the point that keeping things separate is easier with a limited company.
Remember though, the costs of having a limited company are higher as you will need an accountant to do your year end accounts and you will need an accounting system, which is a cost but also an administrative cost. It's worth it for the peace of mind, but something to consider before becoming limited.
