1. Practical reasons
a) Becoming your own boss, setting your own parameters and creating an environment to pursue your own passion is an attractive proposition.
b) Running your own company can give you financial independence , enable you to build your own empire, learn new skills and create jobs, and, give you new challenges to solve.
c) Suppliers, customers and banks can be given more confidence to deal with a company when they know it has an effective responsible management structure.
d) There can be tax benefits by dividing remuneration for a director between salary and dividend payments on shares. Your accountant can determine the most tax efficient formulae. There can also be advantages in a company making pension contributions for a director which will be a tax deductible company expense.
2. Legal reasons
1. A sole trader is at risk of being sued and losing personal assets but a company has limited liability so your personal assets are ring fenced. A limited company has its own legal identity so it is a separate entity in law from its directors/shareholders. This means companies carry on even after the death of the owners and the directors and shareholders involved with the company will possibly change over time. A company’s existence will only cease if it is formally dissolved, liquidated or by other order of the courts or Registrar of Companies.
2. The liability of the company shareholders is limited to the value of their shares which can be reassuring when a company has to make a calculated decision which may put company assets at risk. There is a caveat if a shareholder is also a director in that if creditors lose money as a result of director fraud then the directors liability is unlimited which means personal assets can be at risk.
3. Companies can raise capital by issuing new shares at any time. These can be offered to new or existing investors. Also different share classes can be issued with different rights as to voting, to receive dividends and extract capital if the company is wound up.
4. Exit strategy – you can have various option eg sell the business outright by transferring all shares, or partial sale retaining some shares or maybe just sell business assets but retain the company. There is often the option of selling but also entering into a consultancy contract with the new owners. Entrepreneurs’ relief against capital gains tax may also be available on the sale of the business.
For help setting up your company contact us - details as below:-
BusinessLegal Ltd
Holgrave House, 9 Holgrave Close, High Legh Knutsford Cheshire
WA16 6TX
Email: mike@businesslegal.ltd.uk
Tel:07710 141 058 | 01925 757 887