The Pros and Cons of being a Limited Company

25th October 2011
The Pros and Cons of being a Limited Company image

The Pros and Cons of being a Limited Company

All businesses need to decide the best medium for that business, such as being a partnership/sole trader or say a limited company.

Particularly when I advise small to medium sized businesses I am surprised by the number of these businesses that are not incorporated (i.e. not a limited company) and have not properly considered whether to become incorporated.  So what are the pros and cons of being a limited company?

The Pros

  1. The main advantage is the limited liability status of the company.  If the company gets into financial trouble, save for certain exceptions, the owners’ liability is limited to the extent of their shareholding (e.g. a £1 share) and their personal assets are safe from a claim from the company’s creditors.  The advantage is often diminished where banks or other sources of credit insist on the owners giving personal guarantees.
  1. Quite often the word “limited” after a business name may provide enhanced status in the eyes of bankers, suppliers, potential customers and can often help to gain new contracts.
  1. There can be significant tax advantages.  A limited company pays tax on its profits, and its directors are taxed on what they receive in remuneration from the company.  A partnership on the other hand is not taxed in its own right as a company is (as it is not a separate legal entity).  Instead each partner is taxed on his or her share of the profits, irrespective of how much they have taken out of the business.

Let’s say for example the business makes a profit of £200,000 and pays “salaries” of say £100,000 in total to its two owners.  In the case of a limited company, it would be taxed at 21% on the sum of £100,000 (profit less salaries), and the directors would be taxed at 40% on the salaries of £50,000 each.  The total tax payable would be £61,000 (£21,000 plus £40,000).  In the case of a partnership, the partners would be taxed at 40% on all of the sum of £200,000, even though only £100,000 is paid out in salaries/drawings.  The total tax liability would therefore be £80,000.

  1. Furthermore there are often tax advantages from being a limited company as owners can pay themselves a nominal salary plus substantial dividends at lower rates of tax.  For example you might only have to pay 10% tax on dividends.

The Cons

  1. I think the main disadvantage is the extra administration burdens that can arise.  As a limited company you have to file accounts and information at Companies House, and often these involve a significant cost in terms of accountants’ fees etc.  However usually the tax advantages outweigh these disadvantages.
  1. There can be tax disadvantages in being a limited company and some of these include a less favourable treatment of trading losses that may arise, reduced IHT relief for assets owned personally but used by the company, e.g. premises. Particular care also needs to be taken when there is a prospect that the business could be sold within 2 or 3 years.

If you need advice on whether your business should be a limited company or not then please contact Daven Naghen on 01775 722261 or email daven.naghen@maplessolicitors.com or Gemma Mayer on 01775 722261 or email gemma.mayer@maplessolicitors.com


Who Will You Be Entrusting With Your Conveyancing? image

Who Will You Be Entrusting With Your Conveyancing?

WHO WILL YOU BE ENTRUSTING WITH YOUR CONVEYANCING WORK?  THE CHOICE IS YOURS!

Are the selling agents or perhaps the mortgage broker pushing or trying to persuade you to use a particular conveyancing firm? If so, we would strongly recommend that you ask the following pertinent questions so that, armed with all relevant facts, you are better able to make a reasoned decision:-

Why?

Are the agents receiving a kickback or referral payment from the firm concerned? Using a firm in cahoots with an estate agency inevitably leads to a potential conflict of interest. Will such firm be working in your best interests or simply those of the introducer? Here at Maples we pride ourselves on being completely independent and we consider the idea of a referral fee both abhorrent and unethical. We much prefer to obtain our work based on past performance and recommendation.

How Much?

Do not be misled by a seemingly attractive basic figure initially quoted but be sure to enquire about and read the small print for add ons for so called “extras” (such as mortgage costs, preparation of a stamp duty land tax return, telegraphic transfer fees and the like) which suddenly spring up at a later date and only become apparent in the firm’s final statement. Ensure that you are comparing like for like. Here at Maples, we give you a complete and all inclusive rundown of our professional charges and all disbursements at the outset, with no hidden extras.

Where?

Is the firm local or, as is more likely, based in a completely different part of the country? If the latter, then the transaction will, without a doubt, be dealt with by post, phone or email and lack any personal contact. Here at Maples we are fully accessible, like to meet our clients to discuss and advise upon the transaction face to face and share with you the benefit of our wealth of local knowledge and experience.

Who?

Will you actually be aware as to who will be dealing with the matter for you or will you simply be a reference or matter number at the end of a phone in a firm dealing with volume conveyancing? Here at Maples, you will be assigned to your own experienced and dedicated conveyancer who will be responsible for and deal with the transaction for you from beginning to end, with a high level of personal service throughout.

Making a hasty and bad appointment could seriously prejudice or delay your transaction and cost you dearly. Getting honest answers to these four simple questions at the outset could make all the difference.

To discuss any Conveyancing matters please contact either Claire Smith or Anita Zaborniak of our Conveyancing Team or telephone the office 01775 722261.

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Testimonials

Gemma Mayer LLB

"I would highly recommend Maples Solicitors, especially Gemma Mayer, for any conveyancing work. The level of support and professionalism was excellent at all times. I also felt if I needed to ask or clarify anything that it was not an issue. Buying and selling a house is stressful enough, but Gemma helped me through it step by step."

Anita Toal LLB BA

"I think you are brilliant. You can use my comments above. You are efficient, friendly and quite clearly very good at what you do. Mainly you don’t leave people hanging around too long for." "So easy to talk to her and she understood what I wanted. She put me at ease and I cant thank her enough"

Daven Naghen LLB

"I felt the service I got from Maples was excellent and was very honest all through the process. I would recommend Maples as a first class Solicitors group"

Faye Blair LLB

Faye was excellent, sensitive and acted very well to the time constraints we faced. Great service and dealt with compassion at such sad times made the process less painful very professional.

Jamie Dobbs ACILEx

Over the last forty years I have cause to deal with many law firms both in a personal and professional capacity, including some ‘top’ London Companies. In all of those dealings I have never found anyone as proactive and so willing to offer help and advice as Jamie Dobbs. During the last two years Jamie guided my parents through the completion of Lasting Powers of Attorney. Helped myself with the use of the LPA and recently dealing with Probate and Estate Administration following their death.

Mike Pepper MA

This is the second time we have used Mike Pepper at Maples Solicitors in the sale of our house. We cannot praise Mike enough for the highly efficient and professional service that he has provided us with. He is by far the best solicitor we have ever worked with, and the service that he has provided us with has gone far and beyond anything we have ever experienced. We have found the whole process to be a very relaxing experience.

Claire Smith FCILEx

Claire Smith has been amazing in every way. I highly recommend her and I am so grateful for all her help. She’s professional on all levels, reliable, extremely organised and I will be recommending her to everyone. I’m very lucky to have had her representing me and I can’t thank her enough. She is an asset to Maples. Thanks so much Claire!

Anita Zaborniak

We found it a pleasure to deal with Anita Zaborniak, she was most helpful and informative and kept us up to date with the progress of the purchase of our new home. If we were to move again we wouldn’t hesitate to use Maples again.