First and foremost, the principal benefit of trading via a limited company has always been the limited liability bestowed upon the company's officers and shareholders. As a sole trader or other non-limited business, personal assets can be at risk in the event of a failure of the business, but this is not the case for a limited company. As long as the business is operated legally and within the terms of the Companies Act, the personal assets of the company’s directors and shareholders are not at risk in the event of a winding up or receivership. And as often happens on occasion, such events are not always under our own control.

Operating as a limited company often gives suppliers and customers a sense of confidence in a business. Quite often, larger organisations in particular will prefer not to deal with non-limited businesses.

Many of the costs associated with managing and operating a limited company are no longer much greater than with a non-limited business. Accountants and other professional advisers often have conflicting views on when they consider the benefits of being limited to outweigh the advantages of being self-employed. In general terms, at least from the perspective of taxation and accountancy, changes to legislation over the last few years have meant much lower costs associated with limited companies.

The Companies Act 2006, fully in force from 1 October 2009, de-regulates parts of earlier Company Law making the operation of a private company much easier in practical terms.

There is no obligation for a limited company to commence trading within any set time period after its incorporation. This means that the formation of a limited company is a simple and low cost method to protect a business name. Whilst this does not in itself give any rights to the use of the business name, many clients form companies in anticipation of future development of a new business or in order to protect the limited company name of an existing non-limited business for the future.

See our notes on “which is best” for a comparative guide to the various types of corporate entities that can be incorporated.