4 Limited Company Liabilities and Legalities You Should Know About

Two major issues for any business owner are the ability to generate profits, and protection from legal liability.

The U.S. tax law provides for Limited Liability Companies (LLCs), which offer ownership flexibility and legal protections for the owner. The UK offers business owners a similar business structure: a limited company. Here are the pros and cons of the limited company structure, and the potential impact on your personal finances.

For many years, you have been drafting plans for your new business; you’re creative, savvy and smart, but that doesn’t mean you won’t make any mistakes along the way. Your startup can achieve success if you know the ins and outs of business, including becoming a limited company.

With a limited company, the liability of your members or subscribers is limited to what they have invested in the company. With this in mind, there are actually many advantages of making your business a limited one. There are also legalities and legislations you should be aware of too. Let’s explore four issues that you might come across when you set up your business.

Why Tax Issues Are So Important

When you form a limited company, it will be recognized as an entity in its own right as long as you correctly register with HMRC and Companies House. An advantage of being a limited company is that you will only need to pay 19% corporation tax on your company profits until 2020. A business structure with a lower tax rate allows you to keep more profits each year.

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You should also be made aware of the IR35 legislation, which is relevant to any UK contractor operating via a limited company. Keep up to speed with the latest advice here, IR35 – Expert IR35 Advice & IR35 Resources – Qdos Contractor. Sign up for guidance on IR35 from renowned experts. Don’t get caught unaware; expand your knowledge and make sure you’re covered.

Your Personal Liability

Your personal assets will be protected if your business is faced with a legal liability. A limited company business structure helps reduce the need to use personal money to pay off debts that the company owes. Because the business is a separate entity, the limited company bears responsibility for its own financial decisions.

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If your business expands and offers shares to investors, each shareholder’s liability is limited to his or her original investment.

How Pension Plans Work

When you run a limited company, you’re able to invest into a pension scheme, using pre-tax dollars. This is a more effective option than using your own income to start up a personal pension, because personal pension contributions are funded with after-tax dollars.

Having a pension is extremely important, especially as an entrepreneur. You can fund a persion plan as a business owner, which allows you to save for retirement.

Your Legacy

If you remain as a sole trader (sole proprietor), the business won’t be able to operate without you. A limited company is independent from you; you can have a staff of people who can carry on your work when you no longer involved.

Whether pass away, or can no longer dedicate time to the business, it will still be able to operate in the future. The profits generated after you’re gone can provide an income to your surviving beneficiaries.

So, brush up your business knowledge and make your company limited; if you  already run a limited company, make sure you seek out advice from the experts, so that you can plan for business growth and put a succession plan in place.

For informational purposes only.

Ken Boyd

Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies

Co-Founder: accountinged.com

(email) ken@stltest.net

(website and blog) https://www.accountingaccidentally.com/

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