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The benefits of becoming a limited company

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As a sole trader, you may wonder what the benefits are of setting up a limited company.

When you trade as a limited company, your personal liability is limited. This means if your company goes bust, the maximum you can lose is the amount you put into the company or have guaranteed for the company.

As a sole trader, you’re taxed on your income—his can be high when you start earning more.

As a limited company, you pay corporation tax—this is capped at a lower rate. You can then pay yourself through a low salary and dividends — this will result in less tax and more money in your pocket.

As a limited company, other businesses may view you as more professional and secure. This can also help when taking on new suppliers. As a separate legal entity, a limited company has it’s own credit score, financial records and borrowing history. This means your financial position and the limited company will be totally separate.

As a sole trader, it’s harder to take on investment, hire employees, or sell the business. As a director of a limited company, you make the decisions for the company. However, forming a limited company will also increase your administrative and legal obligations, and will be more costly to run than being a sole trader.

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