Limited Company Status

A Limited Company is a company that is run by two or more directors. Limited Companies are set up by two or more individuals with a minimum of two directors and one company secretary. The company secretary can also be a director of the business or they can be an individual who is not involved in the day to day running of the business but is there to oversee that all aspects of the business are run correctly.

Limited Company Status

Limited companies have limited company status which means that they have limited liability. In the event of your company collapsing due to bankruptcy or liquidation the status of your company is important. A Limited Company has limited liability which – for its directors – is a positive.

If your business does fail – which we hope it doesn’t – it will be liable for any debts it has incurred. Limited company status means that as a director of the business you will not be liable for the debts but the company will. This is an advantage if you have used your property as a guarantee against loans from banks or building societies.

A sole trader or partnership is more likely to be at risk of losing their home or property should a business fail.

Limited companies also do not need to audit if their annul turnover is below the threshold of £5.6 million. It is important to note the different between turnover and profit. Turnover is the amount of money that the company has made during the course of a financial year. Profit is the amount of money that is left after all outgoings have been accounted for. Outgoings include salaries, bills, cost of equipment and materials, shipping, utilities and any other monetary value that is paid out.

In addition limited company directors can opt for a lower salary and higher dividend which reduces the amount of tax and National Insurance that the directors have to pay.

It is worth mentioning also that companies who have a profit – which again it is important to note is different from actual turnover – of less than £300,000 will pay less tax. At the present time legislation says that companies with profit of less than £300,000 will pay just 19% tax as opposed to the basic rate of 22%. This also precludes them from the higher rate of 40% personal tax and Self-Employed National Insurance of 8%.

In the event that you wish to sell your limited company you will find it is easier to sell than if you had remained as a sole trader or a partnership.

Disadvantages of Limited Company Status

There really are very few disadvantages to having limited company status if you run your business correctly. As we have already mentioned limited company status reduces the risk to you and your family should anything happen to make the business fail. Limited liability ensures that you and the other directors of the business are protected as much as possible but this is on the understanding that should anything happen to the business you cease trading immediately.

There are many organisations around today that can help you with the formation of your limited company or if you are confident enough you can oversee the incorporation of your own company via Companies House. You will be able to find more information on their website or by contacting your accountant or financial advisor.

It is advisable that if you are in any doubt you seek the assistance of a registered financial advisor.