- Incorporation normally provides limited liability. If a UK shareholder has paid fully for his or her shares, he or she cannot normally be required to invest any more in the company. Although companies with bank borrowings often have to provide directors' personal guarantees, the protection of limited liability will generally apply in respect of liabilities to other creditors.
- A company enjoys legal continuity - it can own property, sue and be sued.
- Effective ownership or part ownership of the business may be readily transferred, subject to the provisions of the Articles of Association. Whilst such transfers may well be covered by inheritance tax business property relief, the capital gains tax position needs careful review.
- Normally a bank can take extra security by means of a 'floating charge' over the assets of the company, and this will increase the amount that can be borrowed compared with a sole trader or partnership.
- Shareholders can be paid in dividends (currently free of NICs) but strict company law formalities must be observed.
- The UK National minimum wage does not apply to directors (as they are office holders) unless they have a Contract of Employment.
- Growing businesses can re-invest profits after a corporation tax charge of 21% (if profits are below £300,000), compared with 40% income tax for higher-rate tax paying sole traders and partners together with a 1% class 4 National Insurance charge on profits over £43,875.
- Accumulated funds could be withdrawn on a sale of shares with the benefit of capital gains tax (CGT) entrepreneurs' relief which reduces the capital gains tax to an effective rate of 10% on the first £2,000,000 of capital gain. Thereafter any gain is chargeable at a flat rate of 18%.
- Corporate status is sometimes thought to add to the credibility or commercial respectability of the business.
- A company can establish a registered UK pension scheme, which may provide greater benefits than self-employed schemes.
- Employees may, with adequate safeguards, be offered an opportunity to buy their own stake in the business, reflecting their commitment and importance to the company.
