Tag Archives: limited liability

Limited Liability Disadvantages?


People thinking about starting their own business often have a rough idea of each of the different types of business structure. Their initial business decisions may be based on the advice of friends or family. Following their advice, they often decide that setting up business as a sole trader is the best option. They’ve been told that forming a limited company is too expensive or that the reporting and accounts procedures are too complex and so they turn to the “easier” option.

Within the UK, there are 3 main forms of business which have “limited liability”; these are private limited companies, public limited companies and limited liability partnerships. Each of these forms has its own advantages and disadvantages, but it is worth briefly mentioning a few limited liability disadvantages.

What Are Limited Liability Disadvantages?

Due to the fact that bodies granted limited liability are offered just that (a limit on their financial liability), there are also several rules and regulations which impose restrictions on their functioning. This can be off-putting to some people. The main disadvantages of limited liability include:

  • More stringent reporting – limited liability companies and partnerships have more onerous reporting requirements placed on them. They are required to submit annual returns and accounts to Companies House and keep the registrar up to date with any changes within the business. This is off-putting to those who just want to get on with running their business.
  • Transparency – information about the company is held by Companies House but is also available to the public. Therefore director’s details can be discovered by anyone who cares to know.
  • Accounting requirements – due to the fact that running a limited company is generally more tax efficient (with lower tax rates) than any other form of business, there are stricter rules around accounting.

Limited Liability Disadvantages – The Myths

The truth is, these minor points are often exaggerated and the advantages often outweigh the disadvantages of limited liability. Although reporting and accounts are stricter, there are pay off’s. Corporation tax is charged at a lesser rate (nearly half as much) than the personal tax rate that can be placed on sole traders and the ability to pay via dividends means further tax efficient means of running a business and making a profit without giving all your money to the taxman.

The fact that director’s details are public is of little significance, as in most cases running any business necessarily exposes your personal details to the public. On the other hand, not using a limited liability entity to run your business will expose you to financial risk. This is why over 2 million businesses have set up in the UK as a limited company and thousands more register with Companies House each month. Your finances, your house and your savings will be protected if the business fails or accrues debt it can’t pay.

Many people are under the impression that setting up a limited company is complex and costly. This is yet another myth. With our FREE Company Formation service, we could have your business set up as a limited company within a day!* This can be done with very little hassle and the best thing is your business will be protected. Your company name will be put on the Companies House register and will thus be restricted from use by anyone else. Registering a limited liability company also creates a new legal entity, which will survive beyond the business owners. This is quite appealing to business people who have put (or will put) years of blood, sweat and tears into their business endeavours.

Contact our business consultants today for guidance on how to run the most tax efficient business by carrying out a company formation! 0800 0828 727.

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*depending on Companies House backlogs and submission times. See site for details.

Advantages and Disadvantages of Partnership


A partnership is commonly formed where two or more people wish to come to together to form a business. Perhaps they have a common business idea that they wish to put to the test or have realised that their skills and talents compliment each others in such a way that they might make a good business team. Forming a partnership seems like the most logical option and, in some cases, it is. Running a small business with a reasonably low turnover, a partnership is quite often a good choice of legal structure for a new business. The way a partnership is set up and run as well as the way it is governed and taxed often make it the most appealing form of business. However, there are circumstances where this isn’t the case.

Being a partnership, the business owners necessarily share the profits, the liabilities and the decision making. This is one of the advantages of partnership, especially where the partners have different skills and can work well together. However, it can obviously present some problems. Over the years, many partnerships have turned sour. Family and friends go into business together and end up falling out on a personal or business level and it all ends badly. This is one of the major disadvantages of partnerships over other business models, but it’s important to be able to balance the advantages and disadvantages.

Advantages of Partnership

  • Capital – Due to the nature of the business, the partners will fund the business with start up capital. This means that the more partners there are, the more money they can put into the business, which will allow better flexibility and more potential for growth. It also means more potential profit, which will be equally shared between the partners.
  • Flexibility – A partnership is generally easier to form, manage and run. They are less strictly regulated than companies, in terms of the laws governing the formation and because the partners have the only say in the way the business is run (without interference by shareholders) they are far more flexible in terms of management, as long as all the partners can agree.
  • Shared Responsibility – Partners can share the responsibility of the running of the business. This will allow them to make the most of their abilities. Rather than splitting the management and taking an equal share of each business task, they might well split the work according to their skills. So if one partner is good with figures, they might deal with the book keeping and accounts, while the other partner might have a flare for sales and therefore be the main sales person for the business.
  • Decision Making – Partners share the decision making and can help each other out when they need to. More partners means more brains that can be picked for business ideas and for the solving of problems that the business encounters.

Disadvantages of Partnership

  • Disagreements – One of the most obvious disadvantages of partnership is the danger of disagreements between the partners. Obviously people are likely to have different ideas on how the business should be run, who should be doing what and what the best interests of the business are. This can lead to disagreements and disputes which might not only harm the business, but also the relationship of those involved. This is why it is always advisable to draft a deed of partnership during the formation period to ensure that everyone is aware of what procedures will be in place in case of disagreement and what will happen if the partnership is dissolved.
  • Agreement – Because the partnership is jointly run, it is necessary that all the partners agree with things that are being done. This means that in some circumstances there are less freedoms with regards to the management of the business. Especially compared to sole traders. However, there is still more flexibility than with limited companies where the directors must bow to the will of the members (shareholders).
  • Liability – Ordinary Partnerships are subject to unlimited liability, which means that each of the partners shares the liability and financial risks of the business. Which can be off putting for some people. This can be countered by the formation of a limited liability partnership, which benefits from the advantages of limited liability granted to limited companies, while still taking advantage of the flexibility of the partnership model.
  • Taxation – One of the major disadvantages of partnership, taxation laws mean that partners must pay tax in the same way as sole traders, each submitting a Self Assessment tax return each year. They are also required to register as self employed with HM Revenue & Customs. The current laws mean that if the partnership (and the partners) bring in more than a certain level, then they are subject to greater levels of personal taxation than they would be in a limited company. This means that in most cases setting up a limited company would be more beneficial as the taxation laws are more favourable (see our article on the Advantages and Disadvantages of a Limited Company).
  • Profit Sharing – Partners share the profits equally. This can lead to inconsistency where one or more partners aren’t putting a fair share of effort into the running or management of the business, but still reaping the rewards.

As you can see, there are several advantages and disadvantages of partnership in terms of a business undertaking. The two main disadvantages are the levels of taxation and the liability. The latter being negated by the ability to form a Limited Liability Partnership (a type of body only available since 2000). The Company Warehouse has a Limited Liability Partnership formation service that we have been running for a number of years, helping people set up their new partnerships. Our specialist team have a good working knowledge of the law and the current advantages of partnership over the other legal forms of business. So they can advise you on the best choice for your new enterprise.

If you decide that setting up a partnership isn’t for you, don’t forget we are currently running a limited time offer of FREE Limited Company Formation, there are many benefits of limited companies so it is worth giving some thought before you decide. Feel free to contact a member of our team for free on 0800 0828 727 for further guidance.

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HMRC and Retrospective Tax

HMRCIn a recent article (Will retrospective taxes affect us all?), the BBC have highlighted the dangers surrounding tax law and its changing nature with regard to business. Obviously wishing to reduce the tax that they have to pay, over the years a number of business men and women have been involved in schemes aimed at minimising payments to HM Revenue & Customs. Perfectly legal at the time, these schemes have now been deemed as illegal as the law changed with Section 58 of the Finance Act 2008. Precedent set by a recent court judgement has meant that this law now has a retrospective effect and many people are finding themselves subject to a hefty tax bill.

A number of these individuals have found that the taxation they face is to such a level that they cannot afford to pay it, even after selling all their assets. Considering that at the time, they all were under the impression that what they were doing was perfectly legal its quite a worry for business people in general.

These changes in tax law illustrate an important yet simple point. If you’re going into business, you need to ensure you separate yourself from the business and avoid liability that could leave you penniless. This is just one of the reasons why limited company formation is so appealing, allowing business men and women to take advantage of the limited liability offered by forming a limited company.

It also makes it clear how important it is for businesses to properly register with HMRC where they are required to do so, keep on top of their books and up-to-date with the latest laws so they don’t get caught out.

The Company Warehouse is here to help you. We offer a number of services to ensure you get on with the tax man.

Vat Registration

Payroll Services

Accountancy Packages

Don’t forget our limited time offer of Free Limited Company Formation! Take advantage of limited liability for your new business and keep the tax man happy.

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Advantages and Disadvantages of a Limited Company

What is a Limited Company?

A Limited Liability Company, quite simply is a company whose liability is limited. That’s the short version. The longer version is that a limited company is a type of company which when set-up allows an entrepreneur to keep their own assets and finances separate from the business itself. This means that people who have invested in the business (the shareholders) are only responsible for any company debts up-to the amount that they have invested and no more. It is therefore a good way for a business to get investment  without risk to a personal wealth. Essentially a Limited Company is seen as an entity in its own right, which can be subject to legal action. As a separate body, a limited company can even be the director of another company.

The Company Types

company-advantagesPublic Limited Companies – also known as PLCs, Public Limited Companies are businesses which have been established with at least 2 shareholders with at least £50,000 worth of shares issued.

Private Limited Companies – are similar to public companies but can be run with just one member and cannot trade shares to the public to raise capital.

Public Limited Companies – usually only created for very specific reasons, these sorts of companies are far less common.


In order to set-up a Limited Company, there are a few criteria that first have to be satisfied. These are laid out by The Companies Act 2006.

Firstly, the Company must be registered with Companies House. TheCompanyWarehouse.co.uk is here to help entrepreneurs who are planning to set-up a limited company, we know what is required by the government and can offer a number of services to help new start-ups register their business and succeed in the marketplace. We have a number of company formation packages, allowing you to start-up your business, from as little as FREE (subject to T&C’s).

The second requirement is that the company must have at least one Director (or two for a PLC) who is at least 16 years of age (since October 2008). Previously under the Companies Act 1985 a Director could be any age up-to 70 years old. The new Act has removed this as it was being abused by companies, have directors under 16 years of age. This was changed by The Companies Act 2006, at the same time removing the maximum age limit. All company directors under 16 are now void.

The Management

The director(s) run the business, the shareholders fund it and reap the rewards. The Company will be taxed on its trading profits and will have to charge VAT on services/products it offers where relevant. Our VAT registration service makes this process simple, be sure to read our guide on VAT and the different rates that might apply to your business, including how to reclaim it. Our accountancy service will help you manage the business accounts and keep the business in proper shape.

Advantages of a Limited Company

Limited LiabilityThe obvious advantage of a Limited Liability Company is the financial security that comes with business. As already mentioned, the Company’s shareholders will only be liable for any debt the company accrues according to the levels of their own investment and no more. This can provide a comfortable feeling of security for investors in the Company.

Separate EntityDue to its very nature, a limited company is deemed to be a separate legal entity from its owners. This has several advantages, including the fact that the company will exist beyond the life of its members. If they retire or die, the company will continue to exist and operate. This ensures security for employees and other members and also is an advantage which other legal forms of business are not subject to.

calculate-company-advantagesTaxation and Tax AdvantagesLimited Companies are only taxed on their profits (usually at a rate of 21%) and as such are not subject to the higher (personal) tax rates placed on sole traders or partnerships which can reach 40%. There are ways to use the limited company form to benefit the members/directors and their interests. If you are forming and running a limited company, you are recommended to pay yourself at minimum wage levels. This allows you to take advantage of the fact that the personal allowance level is £6,475. So you are required to earn over this amount before you will pay income tax on it. When you consider that income tax rates are:

  • 20 % on earnings up to £37,400 and;
  • 40% on earnings over £37,400

Then you can see the advantage of paying yourself in dividends instead of in the form of a pay packet (in the normal sense), especially when you consider that tax on dividends is only 10% and there are no NI (national insurance) charges on them! There are complexities involved where you wish to pay a pension for your retirement, but if you consider that dividends can be paid at any time during the company’s financial year (as many times as you like) it actually makes this method of paying yourself (and other members) more preferable. It also gives you further incentive to work hard to make a profit with the company, as dividends payments are made up of distribution of the company’s profit.

company-carNot Using a Company CarMany people take pride in their company car. However, as the owner of a limited company, you are actually better off not purchasing and running a company car, but instead using your own personal car for business purposes. In this way you can charge the mileage accrued on business travel to the company which allows you to benefit from tax free fuel and the costs are actually tax deductible to the company, so you benefit in two ways.

Using Your HouseStarting out as a small company, you may not be able to afford to lease or buy premises to run your business from. The good news is, you can run the business from your house and claim back for the cost of doing so. If you use 1 room in your home for business purposes then you have to calculate the cost of that room by working out the costs of the house in general (water, electricity, heating, council tax and rent or mortgage interest (not the mortgage payments themselves)) then dividing that number by all the rooms in the house to give you the amount you can claim back.

Ownership and ControlIn the case of Private Limited Companies, the Directors are also usually the main shareholders of the Company. Thus both the ownership and control of the business remain in their hands. Decisions can be made quickly and easily, with little fuss, allowing for a more successful business management platform.

Company Name Part of registering a Limited Company, includes the registration of a Company name. This name will help identify the business in the marketplace, separating it from other Companies and protecting it. If you are thinking of setting up a Limited Company, use our FREE Company Name Search tool to ensure your chosen business name is available, then register it for FREE! A Company name is protected from the registration date, yet a Limited Company is not legally required to begin trading on that date, so registration can be a good way to secure a name for future use.

Employee ShareholdersIn some instances employees can purchase shares (or be granted shares via a company share scheme) and become shareholders of the company. This is good as it rewards the employee’s for their work, providing extra motivation beyond a mere salary. Not only will they have a vested interest in seeing the business succeed, but they will have a say in how it is run.

See more Benefits of a Limited Company on our website.

Disadvantages of a Limited Company

Cost Some people will have you believe that a Limited Company is expensive to set-up. Not so! Our Company Formation packages start from as little as FREE! And include many related services and products that would cost you highly elsewhere.

Complex AccountsThere are more complex and restrictive rules governing the accounts and bookkeeping of Limited Companies than sole traders (for example). The Company is expected to produce years accounts incorporating a double entry format, balance sheets and other notes. With the (generally) larger nature of a Limited Companies business this can be a time consuming and costly undertaking. The Company Warehouses accountancy service is custom made to ease the burden on Limited Companies. Our low-cost, competitively priced service will take hold of the accounting reigns and allow you to remain free to concentrate on the running of the business.

Restricted Capital RaisingFor Private Limited Companies, there is a restriction on the raising of capital via sale of shares. As mentioned, PLCs can gain further funding by the sale of shares, but this ability is lost to Private Limited Companies whose shares are restricted.

Dilution of Powers Due to the nature of Public Limited Companies, sometimes disputes will arise between Directors and Shareholders as their ideas of what is best for the company vary. Sale of shares to increase company funds will further dilute the management, as more and more people have a say in how the company is run. There is also a risk (since Companies can buy shares) that a takeover might occur this way.

As you can easily see, the advantages of a Limited Company, far outweigh the disadvantages. So if you are looking to set-up a company, why not let www.TheCompanyWarehouse.co.uk help you? Our expert team have been helping entrepreneurs from all over the Country form successful businesses for years. Our Company Formation Services are the lowest priced around and as you can see from the table below we provide a wealth of extras included to help you on your way to success.

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