Limited Companies

Accounting Setup of Limited Companies

Generally, a limited company is a separate legal entity from its owners (shareholders) and managers (directors). Management of the business accounts is also less hassle. The company’s debts and liabilities are the responsibility of the limited company and not the shareholders or directors.

The exception is if a director or shareholder gives a personal guarantee to a lender or creditor. If the company is unable to repay the debt, the guarantor would be personally liable. There are several advantages, but also some disadvantages, to running your business as a limited company.

Advantages:

• Limited Liability – Shareholders and directors are only liable for the money they have invested in the limited company and are not personally liable for any of the company’s debts if the company is unable to pay them.

• Prestige – Limited companies are often seen as more stable, established, and professional.

• Tax benefits – If profit extraction is managed through salary and dividends, there can be tax savings compared to operating as a sole trader or partnership.

Disadvantages:

• Cost – Professional costs tend to be higher for a limited company than for a sole trader or partnership.

• Public scrutiny – Limited companies must submit abbreviated accounts to Companies House.

• Losses – Limited company taxable losses are locked into the company and therefore can’t be offset by the directors or shareholders against their other personal income.