We keep getting asked whether people should incorporate and start trading as a Limited Company or remain self-employed as sole traders or partnerships. There are some major advantages to being a Limited Company – not least the limitation of liability itself. This can be vital to help you protect your assets. There are numerous cases where sole traders lose everything, as the buck stops with them. This ‘could’ be avoided if they had incorporated. There are also potential tax benefits, although these are gradually being eroded away by the chancellor, so this is not so clear cut these days.
Another often over-looked advantage is the kudos of being a director. If you are pitching for a big contract with a national firm, then being a ‘director’ may give you more status than ‘proprietor’, and some large organisations prefer to work with Limited Companies (although this is very subjective).
It is also worth considering that if you are Limited Company, it can be easier to get somebody with authority to act on your behalf by appointing them as a Director. This is very difficult to do if you are a sole trader. This could be useful, for example, if you wanted to appoint a named contact to arrange the insurances or finances, so you can focus on other things.
There can be disadvantages however to incorporating. Your insurance may cost slightly more, as you are now an employee. Also, your paperwork and accounts will get more complicated.
When businesses are looking to grow, many will look to incorporate – but not all. You can find some more information about this in our Start-Up Guide but you MUST take professional advice. The government is continually changing the way we are taxed and the liability protections of being Limited are not bulletproof.
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