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12
Apr
Why You Should Consider Registering a Startup Business as a Limited Company
News

Starting a business is an exciting venture. It presents both opportunities and challenges. There are also some important legal obligations to consider.

A key decision to make is how to structure your business. Although there are various business structures you can chose to operate your business under (please see the government’s guidance on this, available at companies house here), registering your startup business as a limited company can provide numerous benefits, including limited liability and tax advantages.

Below we explore some of the reasons you should consider when deciding to incorporate your startup business as a limited company.

Limited Liability

One of the key advantages of a limited company, is the limited liability it provides to shareholders. This means that the financial liability of shareholders is limited to the nominal value of their shares and so, generally speaking, providing security and personal guarantees are not entered into on an individual basis, personal assets are not at risk if the company runs into financial difficulties (for further information on personal guarantees, please see our article on Practical Points to Consider When Entering into a Personal Guarantee).

Professional Image

Registering as a limited company can enhance a business’ professional image. It can reassure potential clients, suppliers, and investors that your business is stable and committed to responsible financial management.

Tax Efficiency

In comparison to sole traders, limited companies often have more tax-efficient structures. Limited companies pay corporation tax on their profits, which is typically lower than income tax rates. Additionally, directors may be able to consider more tax efficient remuneration packages.

Business Continuity

A limited company has a separate legal identity from its owners which means that it can continue to exist, even if the ownership changes or the individual owners pass away. This continuity can be beneficial for long-term business planning.

Access to Funding

Limited companies often find it easier to raise funding, as they have the option of issuing shares to investors in return for capital. Additionally, some grants and funding schemes are only available to limited companies.

Protecting Your Company Name

When registering your business name as a limited company, no one else can use the exact same name, which can be of value in protecting the brand identity of the business.

Other key points to consider

Although registering a startup business as a limited company can provide significant benefits, including limited liability, tax efficiency, and a professional image, it is important to note that running a limited company does come with additional responsibilities. For instance, there are more complex accounting requirements and increased public disclosure and reporting obligations.

In order to avoid being held liable in an individual capacity, directors of a limited company also need to ensure they do not breach their duties (for further information on director liability, please see our article on When Does A Director Assume Individual Liability?).

As a result, it’s crucial to carefully consider these factors and seek professional advice so you can make an informed decision as to whether registering your startup business as a limited company, is the right decision for you.

For further advice on this and other Corporate & Commercial issues, please contact Chris Brightling, Caroline Armitage, Jonathan Masucci, Elesha Bradford or Sarah Karam.

Before relying on this commentary please read the Reliance on information posted section in our Terms of Website Use in our Legal section. Please note that specialist advice should be taken in relation to any specific queries and the information above is provided for general information purposes only.

Authors

Jonathan Masucci

Partner
Corporate, Banking & Finance; Commercial Law

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Our Experts

Chris Brightling

Head of Department
Corporate, Banking & Finance; Commercial Law

Caroline Armitage

Consultant Solicitor
Corporate, Banking & Finance; Commercial Law

Elesha Bradford

Assistant Solicitor
Corporate, Banking & Finance; Commercial Law

Sarah Karam

Assistant Solicitor
Corporate, Banking & Finance; Commercial Law

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