Why Form a Limited Company

Why Form a Limited CompanyOne of the first business start-up questions is, why form a limited company? This can be a difficult decision to make, to help we have included below a few reasons for forming a limited company. The other options available are Self Employed or Partnership.

Limited Company – Separate Legal Entity

When a new limited company is created, a separate legal entity is incorporated at Companies House. That Legal entity has to meet certain commitments including completing an annual company return and filing accounts each year.

If a limited company goes wrong the only money that a shareholder or director will owe is limited to the amount they paid for the shares, unless credit has been secured on a personal asset or personal guarantees.

Limited company and credibility

In running your business, it may be easier to get new customers by forming a limited company. It may feel to customers that it is a much bigger company. Some of the larger companies will refuse to deal with self-employed people, so it is worth looking at your type of customers to help make the right decision.

Why Form a Limited Company – Costs involved

There are certain costs involved in forming a limited company. You will need to pay for the company to be incorporated at Companies House, pay a filing fee for the annual return and arranging for an accountant to prepare the year-end accounts to submit to Companies House. Year-end accounts can be completed by you, but there are strict rules and if they are not completed correctly they will be returned.


There are different taxes involved in running a limited company to being self-employed. If you are planning a small business with little profit, then it may be cheaper to register as self-employed. If you are planning a large company, then it may be cheaper to be a limited company. You will have to review all the tax implications to confirm the best choice for your business.

VAT registration

As a partnership or self-employed you can register for VAT, therefore this does not need to be taken into account when making your decision.

Pension Costs

Aa a limited company if you employ staff, you are required to set up a pension scheme. Both the employee and employer can contribute to the scheme.

Exit Strategy

If you are planning to expand the business and then sell it, it may be easier to do this as a limited company. The company owns all the business assets, employees and products. It is far easier to see what the business owns.

Deciding which identity your business will take can be one of the most difficult decisions if you are not sure it may be worth starting as self-employed. If the company is a success you can then form a limited company.

Further information on why form a limited company is available on the Bytestart website.

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