Limited companies are the best option available from tax saving point of view, however it comes a lots of filing and compliance requirements. The directors and shareholder will also lose some their privacy by making their names, addresses and financial information available for public inspection.
A limited company is a legal entity separate from its owners which is able to enter into legal contracts in its own name. This is very important feature of a limited company as this restrict shareholders’ liability to the amount they have contributed in terms of share capital.
The only exception is if you, as director or shareholder of the company, offer a bank or other creditor a personal guarantee to repay the company's debt. In which case they cab be held responsible to pay company’s debts.
Here are the advantages and disadvantages for a limited company.
Limited liability – shareholders’ liability is limited to the amount of capital they have contributed in shape of capital, they are not liable to pay any debts for more than that. This protects personal properties of the directors and shareholders from unexpected losses.
Due to the Limited Liability, companies are more attractive to the new investors.
Status – the business looks big, well established and more professional.
The business can be transferred simply be transferring the shares..
Tax planning opportunities – this is very tax efficient business structure as there are a lots of tax planning and tax saving strategies available to limited companies.
A bit expensive – the professional costs for forming a company and for preparing company accounts and tax returns can be higher than the similar costs for sole trader businesses. This is because of the additional legal and regulatory requirements.
Companies have to file their accounts with Companies House and make them available for public inspection, therefore companies have less privacy than sole trader businesses.
Any shared expenses can result in benefit in kind and tax issues, and recognising mixed-use assets or expenditure can trigger tax charges on the relevant employees/ directors for example taxes on use of company cars.
Company’s losses are not available for offset against personal income of directors or shareholders.
Choosing the right business entity is not an easy decision. We discuss the individual requirements of our clients and advise them on the best option. Our assessment will indicate the most tax efficient way available to you.
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