Have you ever wondered about the disadvantages of operating as a limited company? As your local choice of “accountant near me,” our friendly experts here at Lidertax are on hand to ensure you know more about the disadvantages of a limited company model and how these could apply to your needs. After all, while every business faces unique challenges, ensuring you’ve started with the right structure is integral to encourage long-term success overall.
What are the Disadvantages of Operating as a Limited Company?
Did you know that working as a limited company has numerous potential disadvantages? While many people tend to overlook this, focusing instead on the benefits that this structure can bring, it’s worth keeping in mind that limited companies aren’t the perfect solution for everyone. As such, before you take the plunge, make sure you’ve kept this in mind to help.
More Paperwork Required
Let’s face it. None of us really like having to do paperwork – and that’s just one reason why so many local businesses partner with an “accountant near me” rather than doing things directly.
However, it’s important to keep in mind that running a limited company may come with even more paperwork requirements than other types of business models (such as sole traders). With this thought in mind, if you don’t necessarily think that the benefits of operating as an LLC apply to you, why not consider operating with a different structure instead to cut out some of the paperwork requirements?
That’s not to say that sole traders and partnerships don’t also have paperwork to do, of course – but things tend to be a lot easier.
Did you know that one of the key challenges associated with operating as a limited company is that you’ll have shared ownership? Shared ownership means that you’ll potentially have to negotiate or compromise regarding business decisions, which can leave the firm under shared ownership.
Now, this can often be a benefit, in that it allows the business to spread the demands of management. However, if the shareholders don’t get on well with one another or don’t see eye-to-eye, this can cause significant difficulties in terms of making decisions.
As such, if you want to retain ownership of your business exclusively, operating as a limited company may not always be the right option to consider. If you decide to operate as a limited company, make sure the shareholders have similar shared goals.
Limited Access to the Stock Exchange
One of the key benefits of launching as a limited company is that you’ll be able to issue and sell shares in the company. However, this isn’t quite as straightforward as it might seem since a limited company’s access to the stock market will actually often be limited.
Indeed, you’ll be restricted in terms of the number of shares you can actually issue when operating as a limited company. As such, if you would like to issue a large number of shares, you may need to look at operating under another type of company structure, instead.
Public Information on Companies House
Many people want to keep their business activities private – however, this isn’t always possible. In the case of limited company structures, directors need to have incorporated the company, which will result in the company being listed on Companies House. This information is available for all to see, which many people may feel uncomfortable about.
As such, if you would like to prevent your company’s information from being shared or published online, this can often be considered a significant disadvantage of the limited company model.
Additional Steps to Launch
Launching as a sole trader or partnership is an incredibly simple process, but launching as a limited company requires a lot more time, investment, and paperwork (again)! As such, if you want to launch your business quickly, starting out as a sole trader may be a more efficient option.
However, don’t forget – sole traders don’t have limited liability, which limited companies do. So, in many cases, operating as a limited company can still offer many benefits, and this is important to recognise to ensure you choose the right structure.
Paying Tax Twice
Taxes are a significant expense in many cases. However, it’s hugely important to keep in mind that with a limited company structure, the same source of income will potentially be taxed twice.
This is referred to as double taxation and occurs when the business itself and the shareholder/director pay taxes on the same source of income. Although there are some ways to minimise the size of the tax burden, such as paying directors via dividends based on their performance throughout the year, there’s still a significant tax difference to keep in mind.
#Therefore, avoiding double taxation may be important if you want to keep more money in your pocket. If you have any further questions about this scenario, contact our experts here at Lidertax today.
As a further disadvantage of limited company structures, it’s worth considering that accounts are often much more complex than sole traders or partnerships for limited companies. As a result, if you decide to launch your business as a limited company, you’ll need to take steps to make paperwork and accounting a little easier.
One of the best strategies to consider is to partner with a professional accountant to help. Indeed, your local accountants can help manage the paperwork and accounts on your behalf, so you won’t have to worry about the challenge of complicated accounts!
Make sure you’ve partnered with a professional accountant to help – and do your research to check that your chosen team is suitably experienced with handling accounts for limited companies first.
Disadvantages of a Limited Company – Final Thoughts
There are numerous different disadvantages of operating as a limited company. With this thought in mind, keeping today’s key points in mind may help you determine the most effective strategy for your needs.
But, of course, there’s no way to say for certain whether operating as a limited company is right for you. As such, you may need to get professional support to further your choice overall.
If you need more specific support, advice, and guidance for your business, please don’t hesitate to contact our friendly “accountants near me” team in Streatham, London.
If you need more specific support, advice, and guidance for your business, please don’t hesitate to contact our friendly “accountants near me” team in Chatham in Medway.