6 Reasons to Become a Limited Company

January 6, 2016

Ever since the July 2015 budget, in which George Osborne attacked the limited company status by increasing dividend tax, many sole traders have avoided establishing as an LTD.

Our chartered accountants believe there are plenty of reasons to remain a sole trader, but there are also plenty more reasons to become a limited company. In a time where it seems like the state is against you, business owners can still reap the benefits of evolving their sole trader status to a fully fledged company.


1. Owning a Limited Company Stops You from Going Bankrupt

The ‘limited’ in limited company simply refers to limited liability. The business becomes a separate entity from the owner and all liabilities become attached to the company. So, if the company were to go bust, you would not experience personal bankruptcy.

This differs from a sole trader, where you are fully liable for the finances of the business as you, personally, are the business. You offer your products or services under your name, not a company name. You take loans out under personal finance and you buy supplies with your own money. If you are sued or can’t make repayments, the financial buck stops with you.

This is perhaps one of the most tempting reasons to become a limited company. Security.



2. Gain Increased Commercial Credibility

Most people starting a business start small. Starting as a limited company makes you look bigger.

The limited company status provides plenty of commercial and professional credibility. Going through the steps necessary to start up as an LTD makes you look serious to both customers and investors.

You may offer a similar (or exactly the same) service as a sole trader, but you won’t appear to be as professional. Appearance is very valuable in the business world, especially when trying to attract financial stimulus.



3. Create a Unique Identity

Once your business’ name has been registered, it is protected by law. It is yours. Your business identity is safe. Nobody can trade under the same name as you, or anything too similar.

As a sole trader, you do not have this protection. Another sole trader could do business under the same name, potentially stealing away clients, finding them over the web instead of you. This also means if a limited company then pops up with your business name, you’ll be forced to go through expensive and time-consuming rebranding.


4. Let Our Chartered Accountants Do What They Do Best: Save You Money

As a limited company, your business stands to make some valuable tax savings — something our chartered accountants would be more than happy to help sort out.

Through a variety of methods, such as splitting dividends with a spouse to increase your untaxed income, you can make some serious savings available to sole traders. For more information about how we can save you tax, get in touch.


5. Introduce Shareholders

When a sole trader needs to acquire new capital, they have one option: find a way to personally finance the business. For a limited company, however, there are shareholders.

When you need more investment, you can simply issue new shares, either inviting previous investors and shareholders, offering shares to new business partners, or taking your business public. Whatever way you choose, you have a simple option for inviting more financial firepower.


6. Simplify Expenses Claims

Claiming expenses as a sole trader can throw up a number of issues. Identifying the difference between business and pleasure isn’t always easy as far as the taxman is concerned.

As a limited company, purchases are made under specific business accountants and officially tied to the company. This makes it much easier and simpler to make expenses claims, such as on travel and subsistence.

Make sure you don’t claim on these non-taxable limited company expenses, though.



Decided the reasons to become a limited company outweigh that of being a sole trader? Let us help you make the transition! Our chartered accountants are experts in growing your business.

0113 337 2130

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