One can choose from a number of structures when setting up a business and the disadvantages and advantages of each should be reviewed before making a decision. The benefits of trading as a limited company may well outweigh any disadvantages. The main benefit is going to be a lower amount of personal risk.
Under this type of organization, the shareholders and officers of the business have far less liability. In other types of businesses, such as a sole trader, personal assets can also be at risk if the business should fail. This is not the case with a limited company.
With this type of business, only the assets of the organization can be used to pay off debts should the business fail. In the case of partnerships or sole trader businesses, creditors have the ability to claim all personal property to satisfy any debts. In addition, profits are taxed as personal income which can be at a higher rate than imposed on limited companies.
Another benefit is that this structure can make both customers and vendors more confident in the business. The business seems more serious and professional when it is not merely a sole trader. This can be especially true when dealing with larger corporations. These entities will sometimes refuse to do business with a company that is not incorporated in one way or another.
It is possible to incorporate prior to being ready to start trading. In this way, the name can be protected for future business while the organization begins to develop its ideas. The business is further protected by being able to hold property in its name, thereby keeping it from being affected if there are changes in ownership.
The benefits of trading as a limited company are several. The cost associated with setting up this type of business structure are not usually that large. They are likely to be greater, however, than the cost of setting up a sole trader. Whether the advantages outweigh the greater cost for you will depend, at least partly, on the volume of sales you think you will have.
Under this type of organization, the shareholders and officers of the business have far less liability. In other types of businesses, such as a sole trader, personal assets can also be at risk if the business should fail. This is not the case with a limited company.
With this type of business, only the assets of the organization can be used to pay off debts should the business fail. In the case of partnerships or sole trader businesses, creditors have the ability to claim all personal property to satisfy any debts. In addition, profits are taxed as personal income which can be at a higher rate than imposed on limited companies.
Another benefit is that this structure can make both customers and vendors more confident in the business. The business seems more serious and professional when it is not merely a sole trader. This can be especially true when dealing with larger corporations. These entities will sometimes refuse to do business with a company that is not incorporated in one way or another.
It is possible to incorporate prior to being ready to start trading. In this way, the name can be protected for future business while the organization begins to develop its ideas. The business is further protected by being able to hold property in its name, thereby keeping it from being affected if there are changes in ownership.
The benefits of trading as a limited company are several. The cost associated with setting up this type of business structure are not usually that large. They are likely to be greater, however, than the cost of setting up a sole trader. Whether the advantages outweigh the greater cost for you will depend, at least partly, on the volume of sales you think you will have.
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