Starting a business in the United Kingdom can be a daunting task, but choosing the right business structure can make a big difference. If you're considering a limited company (LLC), here are some advantages you don't want to miss:

Simplified Process and Personal Protection

Creating an LLC is straightforward and can be done quickly. Plus, an LLC provides personal protection to its owner against legal disputes, so your personal assets won't be at risk.

Separate Legal Identity and Flexibility

An LLC has a separate legal identity, making it easier to introduce new shareholders and directors or even pass the company down through generations. Plus, it's simpler to sell an LLC compared to a sole trader or partnership business.

Tax Benefits

An LLC offers tax benefits compared to a sole trader business, resulting in lower tax rates overall and less tax payable when withdrawing funds.

Greater Flexibility in Benefit Planning and Wealth Extraction

The owner of an LLC has greater flexibility in benefit planning, pension planning, and wealth extraction from the company. Withdrawing money can be done in various ways, such as through dividends or salary.

Conclusion

To sum up, opting for a limited company (LLC) as the structure for your UK business has numerous benefits, such as streamlined process, safeguarding of personal assets, distinct legal identity, tax advantages, increased flexibility in benefit planning and wealth extraction, and others. Consulting a qualified expert can help you make the most of these perks

Ready to explore more benefits of an LLC? Tune in to this week's I Hate Numbers podcast!

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When it comes to choosing a business structure in the United Kingdom, there are many advantages to choosing a limited company. A limited company compared to a sole trader or a partnership business offers many advantages that I'm going to be exploring in this week's I Hate Numbers podcast. Please do check out last week's podcast where I was exploring the advantages of being a sole trader.

You are listening to the I Hate Numbers Podcast with Mahmood Reza. The I Hate Numbers podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

Hi, folks. Welcome to another weekly episode of I Hate Numbers. This is the podcast with the primary mission of helping you make more money from your business, reducing your stress and anxiety, increasing your financial literacy and financial awareness, saving you time, and having the business that you aspire to.

I've helped many thousands of businesses over 28 plus years to do that, and I'd like to do that with you. So, let's crack on with this week's podcast. Now, there are approximately 5 million limited companies in the United Kingdom. About 4.8 million of them are what are called companies limited by shares,

more of that in a few moments. The remainder of them are limited by guarantee, CICs, or some other form of formal structure. In this podcast, I'm going to be focusing on limited companies, predominantly with what's called share capital, but a lot of the benefits, a lot of the advantages I'm going to outline apply to most corporate structures.

Now, before we dive into the advantages of a limited company structure, let's make sure we're happy as to what we mean by a limited company. It's quite a strange term in some respects, so let's make sure we are comfortable with what this idea actually is. Now, if you are running a business and, let's say for argument’s sake, that business is running an accounting firm, no hints there, and I call that business, I Hate Numbers, and it's just me operating as an individual, as a sole trader.

Now, one of the downsides of running a business as a sole trader, is that if anything does go wrong, if I get myself into hot water, financially or otherwise, my personal assets are protected. Now, to circumvent that, what I can actually do, I can go through a formal process, which is predominantly form filling, completing some documents, and submitting them to the registrar

at Companies House, I can create what's called a limited company. Now, in legal terms, a limited company is seen as a separate legal entity. It's seen as a legal person, which means it is capable of issuing contracts in its own name. It's capable of signing contracts in its own name. It's seen as separate from the owners who may own that company.

In legal terms, if I put my Rumpole of the Bailey hat on, it's that legal personality that we're concerned with. Now, in my I Hate Numbers business. If I create a company called I Hate Numbers Limited, in reality, even if I'm the only person who works for that limited company, that is separate from me as the individual.

So, it's really important to recognise that a company is seen as a separate legal individual in law, and it's not the same as the actual owner of that company. Now, having identified the essential difference between an individual and a company, and that company is created more by legal paperwork, more by formality,

there's no physical company that we can see. It can be intangible. We then start to dive a bit more deeply into what some of its advantages are. Now, one of the first things is to notice about a limited company that in terms of a process, administration, et cetera, to form a standard company, relatively straightforward, you can decide, having chosen your name and where your office is located is, to create the company and you can have the company created on the same day

by submitting some documentation, either through your agents, through your accountants, or on a DIY basis, you create that company. Now, formality-wise, you can actually do it on the day that you have that idea. The day that you have the name of your company organised, you can create the company at the same time.

The Companies’ Act, by the way, folks, of 2006, making life a little bit more simple here, simplifies some pieces of legislation from the Companies’ Act, which has evolved over the decades, and is the government's intention to keep that relatively straightforward. But don't forget the fact, that there are an immense amount of regulations governing companies, so we need to bear that at the back of our mind.

Now, the second advantage of a limited liability company is the personal protection it gives you against anything that goes wrong. So, if you are engaging in a business transaction, that business transaction goes wrong, you are unable to pay the debts, the liabilities build up, if you get up to something and something goes wrong in terms of the services you're providing, the products you're producing, and there's a legal dispute levied against you, in reality, it will be against the company.

So, your personal assets are going to be safe. They're going to not be at risk of being lost, again, unless you've given a personal guarantee. So, your personal assets like your house, any physical assets you have will be protected. It's worth noting as a footnote, folks, that if you give a personal guarantee to a lender, to the bank, to any supplier, then you adopt personal responsibility for that, and therefore, the limited liability protection has no validity.

Now, the separate legal identity that we mentioned earlier also has effectively another main advantage connected to it. You can have somebody who owns the company, the shareholder, to give it its official term. You can introduce new shareholders in as the business develops. You can have people coming on board who act as directors.

Typically, in a small family firm, the owners and the directors all tend to be the same, albeit they have different responsibilities and different roles. Now, that company, by the way, will stay in existence until the time comes where you dissolve it in a formal process. Either it's liquidated, you close it down, and you remove it from the register. If you retire

and you decide you want no more involvement in your business, and it continues, it's there until it's formally closed down. Now, one of the other things to bear in mind with that is that you can pass that company down through the generations. You have much greater flexibility if you decide to offload or sell that company, and that's going to be of great advantage to you.

Additional advantages of a limited company. Well, tax is going to raise its head, and certainly one of the key attractions for a limited company is the tax benefits that it gives you over being a sole trader. Now, those tax benefits are far and wide, and let me give you a flavor of what some of those may be.

Now, for example, getting money from your business into your personal account to benefit from that is always going to be a key objective. With a limited company, you've got much greater flexibility in terms of doing things like benefit-planning where the company can provide items of a personal benefit to you completely tax-free or certainly cheaper than it would be if you funded it out of your own personal pocket.

Typically the tax rates overall, the tax payable between a limited company and a sole trader business, when you look at the combined withdrawal of funds, is much less than it would be if you were operating as a sole trader. You’ve got the ability also to do things like pension planning, wealth extraction, and that's going to be much more powerful for a limited company than it would be as a sole trader business.

Other benefits of a limited company structure, certainly in terms of tax, is how you choose, how you withdraw that money out of your company. The typical route for most shareholder owners would be a mix of dividends, salary through PAYE, and a third one, which is not often talked about, but I think is very effective, is through benefit planning as well.

So, again, you've got a combination of ways. You can add things like pensions in there, and also where the company pays that pension for you, that can be a very useful device itself. Now, what other advantages might there be? Well, there are still quite a bit that we can have as well. In terms of exiting that business,

if you decide at some point in the future you wish no longer to be involved, you want to retire, maybe pass on the business, or even sell the business, it tends to be much easier if you've got a limited company structure to begin with. That's not to say you can't sell a sole trading business, but it's easier for a buyer and also from a seller's perspective to deal with a limited company.

If a company structure is more complex and you've got groups of companies involved, then you've even got an extra layer of tax benefits that can accrue. More of that in a future podcast. In terms of that dissolution, that exit from the business, you can claim entrepreneur-relief or what's called business-asset relief, nowadays, against any capital gains if you sold your shares.

Again, a limited company structure gives you much more power in that respect. Now, are there any other benefits? Certainly there are. Let me mention two more for you. Now, if you are looking to raise funds in your business, you've got a greater opportunity to do that if you're a limited company. There are certain tax incentives, certain tax breaks that are in the UK like SEIS, or EIS, or venture capital schemes here, which you can levy and raise only against companies, not as sole trader businesses.

You've also got the possibility depending on what the products or services you provide to claim research and development tax credits. Not only will you be able to claim an extra deduction against any profits, but also depending where you are on your business cycle, you can claim some tax credits from the R&D spend.

R&D spend is not available for sole traders, but for companies it's fair game. Now, conclusion, folks. Choosing to operate as a limited company in the United Kingdom gives a whole range of advantages that can promote growth, credibility, strategic opportunities, protection, tax savings, a whole host of things that you can benefit from.

My advice would be that you seek the advice, you seek the support of somebody who's competent and understands limited companies, and the range of benefits that you can get from that. So, from the formation to the running, and the growth, and the tax planning that goes with the company, make sure you are fully supported in that endeavour.

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