BENEFITS OF INCORPORATING
Your liability is limited to the share capital you have purchased. In other words, if it doesn’t work out and the company is left owing money, you are not legally required as a shareholder to put money into the company to pay the debts.
There are often significant tax advantages to trading through a limited company. As the tax regime stands today, you will pay less in tax by setting up a limited company and drawing a small salary and receiving the rest of your income as dividends than you would pay as a sole trader.
In trading as a limited company, you have the ability to smooth your income over a number of years, whereas a sole trader you will pay higher taxes in the good years potentially at a higher rate of tax, and less tax in the bad years.
It’s a good structure to trade through if you are looking for equity investment – shares and shareholder agreements are widely understood in the investment community and afford the investor the level of security/ protection he/she is looking for.
As a director, you will have the ability to draw a salary and therefore get access to employee benefits provided by the State.
Commercially, you look bigger and more established as a limited company.
DOWNSIDES TO INCORPORATING
Ownership in companies is reflected in the issue of shares - this is relatively inflexible when compared with alternatives.
Information about the company will be available on the public record.
There is a legal requirement to prepare a balance sheet at the year-end – this adds a layer of complexity to the bookkeeping required.
As a director of a company, you have fiduciary duties that are defined in Law. There is a requirement to separate your personal and business lives.
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