When you’re planning to start a business working and employing others you need to know the benefits of trading as a partnership or a private limited company. Before deciding, a consultation with a solicitor will provide you with informative guides on the relevant business formations – and insight into the law when structuring your business.
Read on to find out more about the advantages of a private limited company over partnership…
Private Limited Company Data
A private limited company is a legal business owned by shareholders and run by directors. In small companies, these could be the same people. As a limited company, you’re required to register at Companies House to enable the identification of the directors, shareholders, and financial accounts to be available publicly.
The benefits of becoming a private limited company include reduced risks as any debts remain separate from the owners – and the liability of shareholders is limited to the price paid for their shares. This means that personal circumstances aren’t affected if the business fails and personal investments are safe as long as there hasn’t been any unlawful trading.
There will be clear legal boundaries setting up a private limited company between work and home life which brings a good balance.
Disadvantages of a private limited company include:
- More director duties and legal responsibilities
- The responsibility falls on paying corporation tax
- Directors also have to pay National Insurance contributions and income tax on salaries
- The possibility of higher accountancy fees
An outsourced accounting service offered by a trusted and reliable tax accountant in London will provide you with a full accounting department to handle your daily transactions accounts payable and received, payroll and other financial reporting. This can be a great help as these functions can all take place outside the company instead of having an employee handle them. Outsourcing has become a major trend in human resources as key benefits include customising the service to meet your business needs.
When two or more people share the business, net profits, and make the decisions this is classed as a partnership. The responsibility for obligations and debt is also shared. Partners are required to register as self-employed with HMRC and are taxed on the individual share of the partnership profits.
The advantages of trading as a partnership include not having to pay National Insurance contributions. And there’s no need to file a confirmation statement or register at Companies House. You should, however, have a written partnership agreement outlining the relationship, responsibilities, requirements, and sharing of profits and losses.
The greatest benefit of forming a partnership is that you have the freedom to run the business however you like – there’s no need for a governing structure like in a public limited company. And you have better control over your assets as they can be passed in and out of the business quite easily.
Disadvantages of trading as a partnership include:
- Each partner is liable for the entire debt of the business known as joint and several liabilities.
- When a partner’s financial status doesn’t allow for debt payback the remaining partner will be solely responsible for the partnership debt.
- Leaving a partnership doesn’t necessarily mean freedom from future debt as there could be legal disputes and liability clauses if the business faces insolvency.
- Shared responsibility can lead to disputes and bad feeling.
Get Custom Taxation and Accounting Services
Whatever the business formation you choose you’ll need a service to handle your accounting and tax planning so you’re free to focus on running your company. Whether you need a small business accountant in London to help with your self-assessment taxation and National Insurance responsibilities – or bespoke services for your private limited company – you’ll get all the advice and support you need.