Is It Worth Setting up a Limited Company?

To know if a company is worth it, you would first have to know what it is, what its potential is to grow or run at a loss, how much investment is needed for it and if that investment will be sustainable in the long run. You would need to know everything about the company formation including what the variables are and what the risks are especially at their extremes so what exactly are limited companies?

What is a limited company?

This is a company with one owner and many shareholders or a collective of owners who are financially responsible for the company but only up until the amount that they have each initially invested in.

This would mean that the responsibility of the companies finances is only liable for the value of money that each particular person has put into the company from day one. The decision to start this kind of company usually comes from the number of expenses that will be charged to it and this includes the amount of tax that is paid each year. The owners or shareholders would in this way avoid the liabilities completely by paying the least amount of money in all aspects once the business collapses.

The end game of an LLC is basically to reduce the risk of personal liabilities to each of the shareholders and because there could be 100s of them, this could become problematic if there is no structure to control the business model or its finances.

 Sole proprietor VS Limited company

For a sole proprietorship, the taxpayer and the owner are the same legal entity. The business usually costs much less to start up and maintain when it comes to the administration of the company. They are also responsible for the tax being paid over to the HMRC by themselves unless they have hired a private accounting firm to assist them with their books, invoices and taxes. There is no paperwork needed to start up this type of business and the name can be used immediately without registration.

However, the owner of the business would then be responsible for the full amount of tax without the 20% tax-passthrough that LLCs benefit from. In the event of something going wrong with the business and it runs into financial ruin, the owner will be forced to sell off assets to pay for the losses by undergoing an asset forfeiture.

A limited liabilities company is generally called a separate name from the owners, therefore creating a detachment from the company in the event of a financial crash. There is a lot of paperwork that needs to be handed in and the business name is automatically registered once the company formation documents have been filled out and filed.

The name of the business can be saved in advance, but cannot be part of the business as a functioning factor unless the company formation is in place. There are tax benefits, pension benefits and shareholder benefits that all form part of the LLC.

Highlights of a Limited Liabilities Company

The biggest highlight of an LLC is that you do not run the risk of asset forfeiture if something goes wrong and you need to close down the business or you are forced to do so by the law.

You or your partners will not be held accountable for handing in anything that could have been beneficial to the running of the company or might have been an asset in any criminal activities. The business is disregarded as a tax entity and the amount of tax being paid is considerably less compared to a sole proprietor so the company saves money.

Larger corporations may also find it better and more professional to deal with LLCs because it seems more legitimate. The fact that the company will need to be registered gives potential clients security of the business plan making it easier for them to sign up as new clients.

Shares and stakes can easily be shuffled around within an LLC and can be appointed at different levels or classes for everyone buying. This makes it easy for the company to go public and for various investors to participate in the increased funding of the company whilst avoiding the cost of failure or personal asset loss.

Shareholders can be put on a scaling system to give higher stake percentages to certain members who may have more say in the business model or setting up the company formation. This also makes it easy for the shares of a deceased, retired or selling shareholder to be shuffled around to potential buyers without any legal implications.

Another benefit of having an LLC is that the pensions that you pay to your employees can be added on a business expense before tax deductions so you can once again save some money in the tax department of setting up the company formation. The tax returns are also done in a personal capacity.

The returns are done by the partners as personal tax so you can avoid corporate tax or LLC taxes. This also means you can avoid paying double tax because of the 20% pass-through treatment of tax payments. Capital expenditure deductions can also be done by an LLC where equipment or items that will be used over 12 months is listed in the tax returns.

To conclude

If you have a business idea or model that you think could really work in the long run, then a limited company can be a great thing.

There are so many benefits that serve the owner and shareholders well and with very little liabilities to them and with a solid plan and filing the correct paperwork, the company formation should run smoothly and efficiently. If you have any questions about LLCs and whether it is a great choice for your business model then give DNS Associates a call or visit their website for more information.

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