       
Starting a limited liability
company
What are the
disadvantages and advantages of starting
a private limited company? The decisions in
forming a company can for many people considering starting a limited liability
company can be categorised in three main areas. Forming a company is a serious business.
Corporation Tax advantages
Limited Liability Company
Capital structure
Individual
reasons for forming a company may vary while DIY Accounting propose that
certainly corporation tax, limited liability and the capital structure are
of major significance and should be considered before starting a limited
liability company.
Corporation Tax
Advantages
Companies pay
corporation tax not income tax. Corporation tax is a tax payable on the company
net profit. In recent years there has been a considerable tax advantage in
forming a company due to the lower rates of corporation tax compared with income
tax payable by sole traders.
If you are
thinking of starting a limited liability company then you may wish to consider
your personal circumstances and consider whether there would be an advantage in
paying corporation tax after forming a company. This calculation has
ignored the effect of national insurance although the combined effect of
employees and employers national insurance on directors wages does reduce the
corporation tax benefits. Given the different rules applying to tax on dividends
that directors may draw on which national insurance is not payable by the
company then each case has to be assessed separately depending on personal,
business circumstances and the general objectives of the limited liability
company too.
Limited
Liability
A sole trader
receives no protection from the business liabilities should the business run
into financial problems whereas the liability of a company is limited to the
amount subscribed by the members, in effect the amount of share capital
subscribed. On the face of it such a massive advantage would sway the decision
heavily in favour of starting a limited liability company and forming a company.
In real life the
differences and protection offered by forming a company is less clear.
Certainly there is an advantage in relation to unsecured creditors of the
business who could claim 100% of their debt against a sole trader and have to
settle for anything left over after the dissolution of a limited liability
company which is often zero. Directors forming a company will understand
that banks and financial institutions generally will normally require personal
guarantees or loans secured against either company or personal assets for any
significant level of borrowings by the limited company.
In addition
directors starting a limited liability company should be aware that if the
company does run into financial problems and becomes insolvent then all debts
incurred by the company after the directors became aware or should have been
aware that the company was insolvent are personally responsible for those
company debts. For example being late with the rent or exceeding credit terms
could be deemed and presented in evidence as an indication the company is
insolvent.
Capital
Structure
Often overlooked
as a consideration when starting a limited liability company. The capital
structure and opportunity that gives directors forming a company to raise
capital through additional members and the flexibility in bringing in new
partners to the business is a major consideration for major companies.
When starting a limited company consideration should be given to the full
spectrum of ensuring that after forming a company all avenues are explored to
ensure the company has sufficient capital to trade to its maximum capability. A
successful company is valuable and make offer an attractive financial
proposition to potential new members who in exchange for introducing new capital
can be instrumental in the company achieving its maximum financial capabilities.
Decided you are
going ahead with starting a limited liability company?
To start the process of
forming a company please visit our order page.
Why are DIY
Accounting services in forming a company so cheap? Answer, DIY Accounting have
ambitions to be the leading UK company formation agent without sacrificing
quality. All our company formation services being personally dealt with by a
Chartered secretary to ensure forming a company is as fast and problem free as
possible.
Visit the company formation
order form to obtain the documents to form a new company.
Benefits of Limited Liability Company Formation The
essentials required of a new limited liability company
formation in the UK by incorporation and registration at
Company House. Tax advantages and disadvantages.
No Frills Limited Liability
Company Formation
Registration of a limited liability company in the UK is
not a complex business. Four documents are required to
create a limited liability company.
DIY Accounting "Corporation tax advantages of starting a limited liability
company by forming a company" | 
DIY accounting software, tax
accounting, payroll software, limited company formation UK 
