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What is a Limited Company and Should You Incorporate Your Business?

There are many considerations when looking to transfer your business to a Limited company, and whether it’s the best way to go, or the right time to do it, will depend very much on your individual business and circumstances. In this article we’ll look at the issues surrounding incorporation to help you make an informed decision.

What does incorporation mean?

Incorporation basically means registering your business as a Limited company. Your company will become a distinct legal entity, separate from those who own and run it – so it will have its own legal identity, assets, liabilities and bank accounts.

As a director of your Limited company, you will have obligations to fulfil, including the filing of the annual accounts and confirmation statement.

Before you decide whether incorporation is currently right for your business, it’s a good idea to discuss it in detail with your accountant.

What are the advantages of running a Limited company?

Incorporation creates a greater degree of separation between your personal and business finances. This can protect your personal assets and credit rating in the event that something goes wrong.

The name you register at Companies House is yours and no one else can use it, which makes it easier to create and build a positive and valuable brand identity. 

Generally speaking, Limited companies are more tax efficient as Corporation tax rates are lower than income tax rates, there are more tax planning opportunities available and Limited companies can claim a wider range of allowable expenses against profits.

You’ll also have more opportunity to minimise personal tax through effective tax planning. You can expect to take home more money through this route especially if your earnings are high.

In some sectors, incorporation can reassure your clients and customers that you’re a serious business, while operating as a sole trader can limit your opportunities. In this kind of environment, “going Limited” is an obvious choice.

Future growth may be easier as investment from banks can be easier to find than if you were a self-employed sole-trader.

Are there any disadvantages?

There are costs involved in setting up the Limited company and you will have directors’ responsibilities. For this reason, incorporation is less suitable if your plan is a short-term project or if you’re experimenting to see if something works.

There is more paperwork involved with statutory returns to Companies House and HMRC but a good accountant will do much of that for you.

There will be accountancy fees to consider but high-quality advice will usually see these cost comfortably covered by your tax savings.

You will have to file company accounts on the public record so you get less privacy than you would as a sole trader. Your company office address and your personal postal address will also be visible. You can talk to your accountant about using their address if you prefer.

Sometimes, depending on your industry, legislation may prevent running a Limited company from being a good idea. For instance, contractors will need to be sure their contracts are outside IR35 to ensure that running a Limited company is the right option.

If you need advice…

Our accountancy team are highly experienced at supporting contractors and small businesses through incorporation and beyond. If you’re looking for expert advice on your personal position, we’re more than happy to help.

If you’ve decided to incorporate – what next?

You can incorporate your business by registering with Companies House. Orange Genie Accountancy can help. You will need:

  • A company name and address.

  • A minimum of one director and one shareholder.

  • A Standard Industrial Classification (SIC) Code (a four-digit code specifying the nature of your business

Upon completion, you’ll receive a ‘certificate of incorporation’. This shows the company number, formation date, and confirms the company’s legal existence. You will automatically be registered for Corporation Tax with HMRC.

If you have questions or if we can help in any way, please call our expert team on 01296 468483 or email info@orangegenie.com

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