4 Reasons why you should go for a Limited Company for your Start-Up

Aug 23, 2018 by

Most people often wish to start a business and be their own bosses. Despite the interest, many fail to put their desire into action. One of the primary reasons for this is the fear of failure. Operating a business can be challenging. You may in some cases run into huge losses that will compel you to close it down. While this is true for some scenarios, in others, it can be both interesting and highly rewarding. If you’re keen on owning a business, the type of business structure you choose will also play a considerable role in the long-term implications throughout its lifecycle. There are different options to choose from if you intend to set up one. Given the various options, consider giving priority to a limited company based on the following reasons.

Attract Funding

For a business that is just starting up, funding is critical in setting it up, and growing and maintaining it. There are several sources of funding including personal financing, debt or equity, friends, and family. While all these are viable sources, not all can apply to other business formations. For instance, partnerships and sole proprietorships cannot attract equity funding. This limits their ability to seek funding through the sale of shares,  a factor that can serve to limit their ability to grow at a fast pace. Quick growth is essential especially in today’s environment where large businesses tend to out-compete their smaller counterparts. 

Avoiding Double Taxation

During the formation of a limited company, the structure is designed in a way that addresses the issue of double taxation. The risk of double taxation common with many business formations is eliminated in the case of a limited company. As the owner, you won’t be taxed separately. Taxation of a limited company will be more like that of a partnership or sole proprietorship than a separate entity. The profits made by the company will be reported on the shareholder’s income tax returns.

Limited Liability

The owners have limited liability when it comes to the firm’s debts. Their liability is limited to the value of their shares and any possible unsecured loans made to the company. This is in sharp contrast to the case of sole proprietorship or partnership where the owners may have unlimited personal liability. The benefit of having limited liability is that it allows you a bigger appetite for calculated business risk without the possibility of losing everything. However, this may fail to apply in a case where you’re both a shareholder and a director in the same company.

Attract Talented Employees and Build a Great Team

You’ll want to attract and retain the best employees as they are among the company’s greatest assets. With good employees, you can develop a great team. However, such employees need better incentives to keep them around and have them do their best. Such incentives may include flexible working times, training and stock ownership. In most workplaces, stock ownership is among the most valued benefits for both potential and existing employees, an option that is possible with a limited company unlike many other types of businesses.

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