Limited Company v Partnership
Should my business become a limited company? Should I incorporate my business?
Incorporation is the act of setting up a limited company which then becomes a separate legal entity from yourself.
The Decision - Sole Trader / Partnership v Limited Company
The decision is based upon a variety of criteria, but the key elements normally come down to the following :
What is the personal liability against losses or actions against your business?
- Sole Trader / Partnership - No capping of exposure to third party actions. Your personal liability is unlimited unless you elect for a special limited liability partnership
- Limited Company - Limited liability cover, effectively limiting the liability to the value of your business, although there are more frequent incidences now of: Requirements for personal guarantees and more frequent personal actions against directors
What information has to be sent each year to HM Revenue and Customs?
- Sole Trader / Partnership - Filing obligations under Self-Assessment on a personal basis
- Limited Company - More stringent statutory filing requirements and recording, in addition to directors own Self Assessment returns
What access does the public have to my accounts?
- Sole Trader / Partnership - Self Assessment accounts are not available to the public
- Limited Company - Reported accounts are available for public inspection.
What is the income tax position?
- Sole Trader / Partnership - Personal tax based upon profits earned in accounting period
- Limited Company - Personal tax based upon profits "drawn" from business. Corporate tax on profits retained.
What is the public perception?
- Sole Trader / Partnership - Unincorporated business perceived to be smaller entities
- Limited Company - Perception of "larger entity" of limited company status
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