If you wish to trade as a business, and do not set yourself up as a limited company, you will become personally liable for any debts that your business incurs.
If you have any personal assets or savings (indeed anything of any value) they will be vulnerable to any and all claims made against your business.
By trading as a limited company you are literally placing a limit on your liability. That limit is the value of the company, including any money you may have invested into the company, loaned to the company, or are owing to the company.
The company has a completely separate legal identity from its owners and directors, and unless they sign a personal guarantee for its debts they are not liable for these.
There are a number of advantages to trading as a limited company. These include:
- You can sell shares in your company to help you invest in growth
- It may be easier to attract serious investors or business angels
- It can improve your chances of securing a loan from the bank
- There is no higher rate of tax if you are a limited company
- In the event of a business partner leaving the company it is easier to continue the business
- It is easier to sell the business when the time is right
- Your company looks more professional to the public eye
- It can assist in the protection of a business name
- People have more confidence in your business as they can check up on your company on the public records at Companies House.
The main disadvantages of becoming a limited company are the extra costs of preparing of annual accounts and some loss of financial privacy, but if you want your business to be in a position where it can grow and succeed, that is a small price to pay.
If you wish to talk about starting up as a limited company, or changing your existing business to a limited company, call us today and we'll be happy to provide our expertise. Call Advance Accountants (Milton Keynes) for an informal chat.