The benefits of setting up a limited company for your small business

As a small business owner, you have a lot of important decisions to make. One of the biggest decisions you’ll face is how to structure your business. There are several options to choose from, but one that you should definitely consider is setting up a limited company.

Now, before we dive into the benefits of limited companies, let’s define what we mean by “limited company.” A limited company is a type of business structure in which the owner’s liability is limited to the amount of money they have invested in the company. This means that if the company gets into financial trouble, the owner’s personal assets (such as their home or savings) are protected.

In the UK these are normally set up and registered at Companies House.

So, why would you want to set up a limited company for your small business? Here are a few reasons:

  1. Limited liability protection: As we mentioned earlier, one of the biggest advantages of a limited company is the limited liability protection it offers. This can be especially important for small business owners who don’t have a lot of personal assets to protect. If something goes wrong and your business is sued or gets into financial trouble, your personal assets will be safe.
  2. Tax advantages: Another reason to consider setting up a limited company is the potential tax advantages. If you’re self-employed and running your business as a sole trader, you’ll be taxed at the personal income tax rate on your profits. However, if you set up a limited company, your business will be taxed at the corporation tax rate, which is currently 19%. This can potentially result in lower taxes for you as the owner.
  3. Professional image: Let’s face it, running a small business is tough. You’re constantly hustling and doing whatever it takes to get ahead. But as you grow and start to bring on more customers and partners, it’s important to project a professional image. Setting up a limited company can help with this. It shows that you’re serious about your business and that you’re willing to take the necessary steps to protect it (and yourself).
  4. Potential for growth: As your small business grows and starts to bring in more revenue, you may decide that you want to take things to the next level. Maybe you want to hire more employees, expand your product line, or open a second location. Whatever your goals, a limited company structure can make it easier to attract investors and raise capital. This can be especially important if you don’t have a lot of personal savings or assets to use as collateral.

Now, I know what you’re thinking: “But setting up a limited company sounds like a lot of work!” And you’re right, it does require some extra legwork. But trust me, the benefits are worth it. You’ll have peace of mind knowing that your personal assets are protected, you’ll potentially save on taxes, and you’ll give your business a professional image.

If you’re considering setting up a limited company for your small business, my advice is to seek guidance from a financial advisor or accountant (er – like us). We can help you understand the process and make sure everything is done properly. And remember, the benefits of limited companies are just one piece of the puzzle. There are plenty of other factors to consider when deciding on the best business structure for you.

So, if you’re ready to take your small business to the next level, consider setting up a limited company. It may require some extra effort upfront, but the benefits are worth it in the long run.