Pros and Cons of Trading as a Limited Company in the UK

The Pros and Cons of Trading as a Limited Company in the UK

16/07/2021Limited Company

Due to numerous tax incentives, many businesses prefer to be limited companies in the UK. In fact, trading as a limited company helps you to manage your tax liabilities more effectively. However, along with a lot of advantages, there are also some downsides that you can’t overlook. So, let’s look at the pros and cons of trading as a limited company in the UK.


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Pros of Trading as a Limited Company in the UK

Following are some of the pros of working as a limited company in the UK:

1) Works as a Separate Entity from its Owner

One of the foremost benefits of trading as a limited company is its separation from the owner. It means that if a limited company is issued, it’s responsible solely and this will not impact the owner. As there might be many instances where a limited company may be sued. For this reason, it is preferable to do business as a limited company.

2) It has a Limited Liability

It means that the liability of the business owner/ shareholders is limited to the amount they have invested in the business. In case of loss or insolvency, the creditors can not demand the shareholders to provide additional funds for paying off those debts.

3) Easier to get Bank Loans and Overdrafts

If you are a limited company owner, you can easily get bank loans or overdrafts against the business’s securities. This increases the borrowing power of the limited company and provides extra security to the bank.

4) Easy to Transfer Ownership

A limited company owner can easily transfer the ownership of a company by selling its shares. Before transferring, you need to be careful about the tax implications that may arise afterwards.

5) Planning for Retirement

Running a business as a limited company allows you more flexibility at the time of getting pensions.

6) Perception

Other than sole tradership or partnership, a limited company is considered more established and reliable.


Trading as a Limited Company


Cons of Trading as a Limited Company

Along with the mentioned benefits, there are also some downsides of the limited company that you need to consider before starting your business:

1) Incorporation

A limited company is difficult to incorporate as it needs to be registered with Companies House which can be a difficult and time taking process.

2) Costly to Set Up

Generally, a limited company requires more money to set up than other types of businesses.

3) More Chances of Losses

As a separate entity, the losses made by a limited company are set off by the profits earned in the previous years or which the company may earn in the future. It’s a great disadvantage, as many new businesses might suffer losses at the beginning stage.

4) Accounting and Administration

It requires complex, time-taking accounting and administration responsibilities. It includes filing annual returns to companies houses, preparing dividend tax vouchers, etc.


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5) Expenses

You can only get tax relief, as a company director, on expenses that are crucial for performing duties as a director.

6) Personal Guarantees

Whilst getting loans and overdrafts from the banks is easier but it requires the personal guarantee of the director. As in the case of insolvency, the director will responsible to repay the borrowings. In addition, some suppliers also require the personal guarantee of the director that reduce the directors’ limited liability to a great extent.


Summing Up

Many of the legal requirements of a limited company will incur penalties if they are not dealt properly within time. Hopefully, this post has provided some useful information to you about the pros and cons of trading as a limited company in the UK.


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Disclaimer: This blog is intended just for general information on the above topic.