What Are The Advantages Of Being A Limited Company?

by Nehal Khan Blogger

There are several perks of being a limited company. However, it is important to understand the meaning of a limited company before moving ahead with the main topic related to limited company advantages. A limited company (LC) is an organization wherein the liability of the shareholders of the company are limited. The subscribers or the company members are only responsible for the debts of the company to a limit. The debts are restricted to the amount of capital that each member has invested into the company. The amount of capital varies and it can be into millions or billions depending upon the market cap of the company. Listed companies are private organizations. Such companies are limited by guarantee or by shares.

Now let us move on to the main topic of the benefits of being a limited company:

Being a limited company has its benefits not just for the parent organization but for all of its shareholders and executives. The main perks are listed below:

Different Entity: The best part about being a limited company is that according to the government, the owner and the company are considered as two different entities. Therefore, it is a less risky endeavor to start a limited company. The director of such a company has much more freedom of functioning because the owner does not have any attachment to the actions of the company except the capital investment. The shareholders and the director are therefore protected. So there are fewer chances of issues arising between the company hierarchy and the owner or board members.

Tax-free Income: The director of a limited company can maximize the amount of tax-free income. This is possible because the director can make his/her family members the shareholders of the company. This is possible because as per the law, the director and the limited company are separate entities.

High Tax Efficiency: Another one of the many limited company advantages is tax efficiency. A limited company has the potential to be more efficient than a sole trader. The owner of the company takes the maximum possible non-taxable income. The rest of the income is taken by the director in the form of dividends. The best thing about dividends is that they are free from NIC (National Insurance Contribution). Also, the income tax rates for dividends is very low. So it’s a win-win situation for the owner and the top-level executives as well shareholders.

Liability Is Limited: This is the biggest advantage of being a limited company. As the owner of a limited company, you will be protected in the eyes of the government. If your business is in heavy debt, owing to the director and board members being seen as separate entities from the business, no one has to use their personal assets to clear the debt. Therefore, liability is limited. Besides this, the government has some provisions in its law book to safeguard and save the company by providing financial aid.

These were some of the advantages of being a limited company. It is much wiser to own a limited company rather than become a sole trader.