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Digital Company Formation

Should I Form a Limited Company?

Factors to Consider

The ‘key’ benefit to registering a limited liability company (Limited) or a limited liability partnership (LLP) is that both entities are considered separate legal persons. At first, this sounds rather silly but, in law, a limited liability company or partnership is separate from its directors, partners or shareholders and this legal fact is what makes it so attractive for small to medium sized businesses.

In simple terms, it means that provided you have objectively acted in good faith, respected your fiduciary duties and generally have just been a ‘good egg’ you will benefit from what is known as the ‘corporate shield’ whereby the only funds that are endangered are those you invested into the company either by a loan or share investments. By way of comparison, a sole proprietor who sets up in business has no such protection and is potentially in danger of losing everything should his business fail, whilst an ordinary partnership can have catastrophic consequences for the better-off partner (as well as fracturing many a friendship). For example, if ‘A’ and ‘B’ go into partnership but ‘B’ has 3 times the assets of ‘A’ then should the partnership go bust ‘B’ can lose 3 times as much as ‘A’ even if they were equal partners in the partnership!

Advantages of setting-up either a Limited Liability Company (Limited) or Limited Liability Partnership (LLP):

  • Limited companies and LLP’s have a separate legal personality to their investors
  • Liability is limited to the amount invested save where there has been gross negligence or fraud
  • Limited Companies benefit from lower corporate tax rates than would normally apply to individuals
  • Both Limited Companies and LLP’s are generally deemed more professional and prestigious than would be the case for sole proprietors or non-limited liability partnerships
  • Confidentiality can be achieved by using a service of process address rather than listing personal details at Companies House
  • Limited companies and LLP’s can benefit more extensively from international tax treaties than individuals or partners

Should I Form a Limited Company?

 

Disadvantages of setting-up either a Limited Liability Company (Limited) or Limited Liability Partnership (LLP):

  • Setting-up either a Limited Company or Limited Liability Partnership will cost money but it should be noted that in the UK the cost is very low as are the capitalisation requirements
  • The reduced level of corporate taxes will be slightly offset by the higher cost related to paying annual Companies House and accountancy fees