Limited liability status offers many advantages and for this reason solicitors often advised businesses to go limited.
However, in the past, business owners have rejected the idea because it may have been more tax efficient for them to trade as a sole trader or as a partnership.
The incorporation process itself has put many off, simply because it seems too daunting and they fear increased administration.
But with the current corporation tax rates, it is worth looking at the benefits of trading as a limited company.
Although ultimately dependent on personal circumstances, many sole traders and partnerships could pay less tax and National Insurance through incorporation. Also, if properly advised, the concept and process can be made clear and straightforward.
A limited liability company may also be preferred in order to insulate the owners from the liabilities of the business.
Incorporation can also be beneficial for those considering selling or retiring, because a limited company is an ideal vehicle for succession or sale purposes.
Limited company status may even add to the credibility and the perceived commerciality of the business - opinion seems to suggest that it might add an extra dimension of professionalism and perhaps longevity to an enterprise.
A limited company can also utilise the enterprise management incentive scheme, a popular share option scheme designed specifically as an incentive for key personnel. Such tax-efficient employee benefit schemes are usually only available to limited companies.
The level of complexity and administration in running a limited company is also far lower than many imagine, so it need not be the discouraging prospect or practice it sometimes seems.
Of course, the limited liability partnership is also now an option. This structure benefits from having the same organisational flexibility and tax status as a partnership, with a similar degree of insulation from liability as a limited company.
When it comes to the question of whether or not to take the incorporation route, there are a number of factors to think about, but the current climate does make considering it a wise move.
* Neil Hilton is a solicitor in the business and company law team at Blackett Hart and Pratt in Darlington. For more information, contact him on (01325) 466794.
Published: 01/11/2005
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