We are often 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 trading as a Limited Company – not least the limitation of liability itself. This can be vital to help you protect your assets if something goes wrong – many a sole trader has lost everything through no fault of their own. There are also potential tax benefits, although these have been gradually eroded away by successive chancellors. Who knows what Rachel Reeves is going to do?
Another often overlooked 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’. After all, anybody who runs a Tree Surgery or Forestry firm also has to be a ‘salesman’.
If you are a Limited Company, it can be easier to get somebody to act on your behalf by appointing them as a Director. This can be very difficult to do if you are a sole trader. This could be useful, for example, if you wanted somebody to arrange the insurances or finances, so you can focus on other things.
There can however also be disadvantages to incorporating. Your insurance may cost slightly more, as you are now an employee. Also, your paperwork and accounts will get more complicated and costly.
When businesses are looking to grow, many will 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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