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3 Reasons Why You Should Set Up A Limited Company In The UK

Updated: Jul 4

Friday 14th June 2024

Why you should set up a limited company in the UK
Reasons for setting up a limited company

  1. Limited Liability Protection

One of the main advantages of establishing a limited company in the UK is the limited liability protection it offers. This ensures that shareholders’ personal assets are safeguarded, and they are only responsible for the company’s debts up to the amount they have invested. This structure acts as a safety net, significantly reducing personal financial risk if the business faces insolvency.  

2. Tax Efficiency

Limited companies frequently enjoy more favourable tax rates compared to sole traders or partnerships. Corporation tax rates are typically lower than personal income tax rates, and there are various tax reliefs and allowable expenses available to limited companies. Furthermore, dividends paid to shareholders are often taxed at a lower rate than salary income, which can reduce the overall tax liability. 

3. Professional Credibility and Growth Potential

Operating as a limited company can boost your business’s professional image and credibility. Clients, suppliers, and investors often view this structure more favourably, leading to increased business opportunities and easier access to financing. Additionally, a limited company has a clearer framework for scaling and growth, simplifying the process of raising capital and expanding your business. 

Moreover, the limited liability protection provided by a limited company extends beyond financial aspects. It also offers legal protection, as the company is considered a separate legal entity. This separation ensures that the company can enter into contracts, own assets, and incur liabilities in its own name, shielding the shareholders from personal legal responsibility for the company's actions. In addition to tax efficiency, operating as a limited company can provide more flexibility in terms of profit distribution.

Shareholders have the ability to retain profits within the company for reinvestment or future growth, allowing for strategic financial planning and maximizing tax advantages. Furthermore, the corporate structure of a limited company can enhance long-term sustainability and succession planning. With the potential for perpetual existence, a limited company can outlive its original founders, providing a stable platform for generational wealth transfer and continuity of the business.

Overall, the decision to establish a limited company should be carefully considered based on various factors such as business goals, financial objectives, and long-term strategies. The benefits of limited liability protection, tax efficiency, professional credibility, and growth potential make it a popular choice for entrepreneurs looking to establish a secure and reputable business entity.

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