Advantages and Disadvantages of Company Small business Formation

Advantages and Disadvantages of Company Small business Formation

With the current state from the economy, more and more people are finding themselves out of work or suddenly on less money as they are forced to work a shorter week to cope with shrinking company budgets. A large number of these people have taken the plunge and started their organization.

Starting your own business has quite a few advantages and appealing factors for most people, not least of which is the freedom of being your boss, choosing your working hours and deciding how issues should be done. That’s not to imply that starting your own business won’t involve a great deal of hard work, because it will, but the rewards generally far outweigh the downsides.

A great number of people start up a new company as a sole trader, becoming self-employed and registering as such with the HMRC. Unaware of the advantages a business formation would hold as an alternative.

The Advantages of Firm Formation

The several advantages to forming a limited company, instead of running a company as a sole trader which not everyone is aware of.

Tax Benefits

Sole traders, registered as self-employed are expected to complete a self-assessment each year. Due to the nature of the business enterprise, they will be expected to pay personal tax on the profits the organization made. If the enterprise is successful, this can mean that the rates of tax can become quite high. On the other hand, carrying out a firm formation and creating a limited firm would allow a business enterprise owner to pay themselves using dividends, which are subject to a lower tax threshold. This means that organizers can make more funds and give less to the taxman when running a limited company. It is not avoiding tax, but simply taking advantage of the limited enterprise model.

Limited Liability

Another major benefit of carrying out a company formation is the limited liability protection that comes with this particular organization model. The law allows protection from liability for the owners of the company. In the event the organization accrues any debt during its running, the owners will only be liable as much as the amount they initially invested and no more. This may be very appealing indeed. Sole traders and their business enterprises On the other hand are seen to become the same by the law. So if the small business acquires any debt, the company owner is automatically liable.

Secure Entity

carrying out a business formation offers more security and protection to get a small business. With successful company formation, the name with the enterprise will be added to the Companies House register. This means that other businesses might be prevented from using that name. The business will also be issued with a certificate of incorporation, an organization registration number, and a date of registration. This is an important business tool, as when the year’s tick by this registration date will be a testimony to the length of the company’s existence. People are naturally more trusting of longer standing companies than newly formed ones.

Recognized as an entirely separate entity from the enterprise owner, a limited business can exist beyond its owners.

Quickly Formed

With the use of an online firm formation agent, a company formation might be quickly and quickly carried out. Usually, in a few hours, certainly complete on the same day, a company can soon be registered with Companies House. The low-cost formation is also offered, dispelling the myth that creating a limited company is an expensive job.

Disadvantages of Corporation Formation

There are a few disadvantages of completing a company formation to run your enterprise which needs to be considered. Generally, they are far less taxing than you might expect and certainly usually do not outweigh the advantages.


Limited companies are more strictly regulated than self-employed businesses. Information about the enterprise is held publicly and freely readily available. The accounts and annual reports need to become properly filed or there is a risk of fines and there are several other accounting dates that need to be adhered to.


Limited companies are subject to stricter laws than other businesses. They must adhere to the law laid down by the Companies Act 2006 and other related regulations. Failure to do so can lead to criminal penalties and serious fines in some cases.

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