I have recently been writing a few articles dispelling the common business start-up myths. There are similarly a number of myths surrounding company formation. Many people believe that starting a limited company costs a lot of money. More money than starting business as a sole trader or partnership. Although it might be true that there are more costs to running a limited company, the benefits often outweigh the costs in such a way that more profit is made using a limited company than any other form of business. Which is one of the reasons why it is so popular for entrepreneurs.
The costs of company formation
The process of starting a business as a limited company varies in cost depending on how the formation is carried out. There are many company formation agents out there, each offering different prices and different services. You may of course think that you can reduce the costs of company formation by registering the business yourself. However, as I recently demonstrated in our article “DIY vs Company Formation Agent” – it is actually cheaper to use a company formation agent (such as The Company Warehouse) to register your limited company with Companies House.
The ongoing costs of running a limited company
Starting a limited company costs money, as does running any sort of business. Similarly there are ongoing costs, like hiring an accountant to help with your bookkeeping and making tax payments to HMRC. There are also complexities to running a limited company, such as the submission of company accounts and reports on a yearly basis, which often put people of the limited company form. It should however be noticed that the ongoing costs of running a limited company are often counter-balanced by the benefits.
Running a limited company allows a business owner to benefit from the tax efficient nature of the business structure. Meaning that you can pay less tax and actually take home more of the profit from the business (in the form of dividends) than you could as a sole trader or partner. Limited companies are subject to a lesser tax rate than the personal tax these other business forms are subjected too. See our article on the advantages of a limited company for further details.
Business start-up costs
In reality, it probably costs less to start a limited company, in the long term at least. The costs of actually getting any business started will clearly depend on the type of business you are running and what you intend to do. As I mentioned in the business start-up myths articles, you need to spend money to make money. The more you invest, the more you are likely to get back in return. Whatever business you are thinking of starting, you are bound to make more money for yourself (and your business) by getting started than simply working for someone else.
Start your limited company today by using the UKs leading company formation agent.
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