If you’re a sole trader, you may have set up as such in the beginning to make things easier from an administrative point of view. And now that you’re earning more, you may be thinking of setting up a limited company. But how do you know when it’s the right time to start running a limited company, and what do you need to consider before taking the leap?
Why might you want to set up a limited company?
You may feel that being a limited company may make you more attractive to potential customers, which is just one reason why making the switch could be beneficial. You may also be bringing other people into the business. When you have other directors and shareholders to consider, it makes sense to start thinking about becoming a limited company.
You also may wish to make the change for tax reasons. Limited companies are usually more tax efficient than sole traders because they pay corporation tax on their profits and can enjoy more allowances and tax-deductible costs.
Having a limited company also means you have greater borrowing power should you need funding. Plus, you have limited liability. This means you are not personally liable for the company’s debts, so you only stand to lose what you’ve put into the company.
Another benefit of setting up a limited company is that your company name will be protected once you have registered it.
What are the disadvantages of running a limited company?
However, creating a limited company does leave you with added responsibilities. As a director, you’ll have legal requirements which can be costly and time consuming. You may need to hire an accountant to help you deal with some of this. You’ll also need to file an annual return.
Details of the company and its directors will be listed on Companies House, which may not be appealing – or it may not matter to you.
If your business is growing, you’re thinking of hiring other people, or you’re ready to take on more responsibility and potentially reap greater rewards, it may be time to change from being a sole trader to becoming a limited company.
If you’re ready to run a limited company and would like help with setting up, take a look at our company formation packages or call 0800 0198 698 to speak to our professional team.