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As soon as you decide to establish a business, you will need to determine whether or not to form a new limited company or go it alone. Self-employment might take the form of a single proprietorship or a partnership, depending on your preference. Many new businesses begin as sole traders and subsequently transition to limited companies.
It’s essential to know the pros and cons of each company structure to make an informed decision. This knowledge would allow you to maximise profit, minimise risk, and grow your business more effectively.
This article will discuss each company structure to help determine which one is best for you.
A limited company is a company structure in which it has its legal existence, distinct from its shareholders and directors. Even though a corporation has just one shareholder and director, it is still a legal entity in its own right. Your company will have a different legal identity from yours, and its money will be maintained separately from your own. As a director of your limited company, you will be protected from personal accountability for the company’s debts and obligations.
Take John, for example, who is the only director and shareholder of Swift Communication Ltd. When the company makes a sale, the money belongs to the company. Swift communication Ltd may give John a salary as a director or pay him dividends as a shareholder if it makes enough money. And it can reimburse him for any personal business expenses he incurs. Aside from that, if he withdraws funds from the company’s bank account, he may be subject to further tax.
It is possible to form a private limited company for any business, including a plumber, hairdresser or photographer. Shareholders are the owners of a private limited company.
A sole trader is a self-employed individual that runs their own business. Because a sole trader company lacks a legal status apart from its owner, many people believe you are the business. As a sole trader, you have complete control over your business, assets, and income after taxes. Along with this level of control, this business model provides relative simplicity, adaptability, and a variety of additional benefits. For example, although having a separate bank account for your company is a good idea, it is not a legal need. Business owners who offer specialised services, such as gardeners, carpenters, or builders, sometimes operate as sole traders.
Before deciding whether to be a limited company or a sole trader, you must examine the pros and cons of operating as a limited company and as a sole trader since the business structure you pick will influence everything from earnings to paperwork. Don’t hurry into any decisions and consult with an accountant if you’re concerned about anything since their knowledge and experience may be pretty beneficial for tax planning.
If you’re still unsure, please get in touch with us and one of our team here at J27 Accountants will help you.
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