Self-Employed or Limited Company

There are different structures of operating the business. One decision is to make the business self-employed or limited company.

This option has several advantages, which is why most entrepreneurs are attracted to venture.

Being self-employed and operating the business on your own van lead to limited company. However, these two structures have different implications and options. That is why before making your decision of which business structure to use it is important to understand how it works and can help your business. Some of the issues involve include tax implications, legal liability differences, set up and cost differences as well as credibility differences.

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The tax implications is one of the issues involve in choosing between self-employed or limited company. If you choose to remain self-employed and operate the business on your own then you are required to remit the income tax and insurance contribution from the profit obtained in your business. Usually, the amount payable for the income tax is similar to the salary received. On the contrary, if you choose limited company the profit earned by the business will be charged to corporation tax. This way the taxable amount will depend on the business profits. This means that if the profit gained is small then the company will pay lesser income tax.

Another issue to consider in making decision is the legal liability. In self-employed business structure the business owner has the sole responsibility and liability of all the undertakings such as loans and credits. That is why in case of default payment the lender can make legal actions against the business owner. The worse thing is that the lender can repossess the personal assets for repayment failure. Nevertheless, in case of limited company the company is liable for all the loan undertakings and in case of default in payment the lender can only take the company’s asset and not the personal assets of the owner. In case of the shareholders, there is a limited liability depending on the amount paid for the shares. In addition, the paperwork as well as the set up cost is entirely different between the two business structures. This is because setting up self-employed business is straighter forward as compared to setting up of limited company. Likewise, operating a limited company involves more time in doing paperwork that includes the annual accounts and other expenses reports.

In terms of credibility differences, the limited company is safer for long term investment as compared to self-employed. This is because the limited company has the capability to retain the profits that can be used for future financial needs. With all the issues addressed, it is good to consider limited company not to mention the advantages involve. On the other hand, make sure to mull over the requirements and circumstances involve before you make the final decision.


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