If you’re thinking of starting your own business, you might be wondering what kind of company structure to create. Many people will choose to be sole traders, meaning that their accounts and company setup are very simple. Others, however, will choose to create a limited company, and there are many positive reasons for doing this.
In most cases, if you choose this latter option, you will find that you automatically become a company director.
It’s important to understand why this might be of benefit to you before you make the final decision. Read on to discover some of the reasons why becoming a company director is a good idea.
You Can Limit Your Liability
One of the main reasons that people set up limited companies is that, as the name suggests, they will automatically have limited liability within that company. That means that should something go wrong, any money owed by the business will not be owed by them. The only exception is if you were to have made any personal guarantees within the business, which can sometimes be required for higher lending.
Although no business owner wants their business to fall into hard times and have to close, the fact is that, if it did for any reason, you wouldn’t have to pay back any borrowing or have your credit score adversely affected, and this is often reason enough for some people to set up their businesses in this way. It’s a safety net that allows them to take more risks, which can lead to bigger profits and a better business.
It Looks Professional
Being the company director of a limited company offers a professional image that is hard to find anywhere else. Adding this appointment to your CV can look good if you were to apply for other jobs in the future, and it will help you if you want to apply for higher-paying jobs at a level that you might not have been able to reach before.
In terms of your business, being a limited company looks a lot more professional and customers will feel as though they can trust you more than a sole trader. They will know that you have to work much harder as a company director to follow the very specific taxation rules, and it will be clear that you are serious about your business if you have chosen to go down this route.
There Are Some Tax Advantages
One of the downsides of being a company director and running a limited company is that there is a lot more paperwork to do. However, if you have the help of an excellent accountant, this can be minimised.
Your tax liabilities can also be minimised if you are sensible with your payments. Company directors can pay themselves a basic salary which is then topped up with dividends. Both payments are subject to less tax combined than a larger salary would be, helping you to earn more money.
The key factor to consider is your retained earnings. You will need to ensure you leave enough money in the company to pay for any essential bills after you have paid yourself, otherwise, you might run into financial difficulties. It’s always best to have an account on hand to help you with any tax payments and reports.
It’s Easier to Sell the Business
It might be that your ultimate plan regarding your business is to build it up to a profitable level and then sell it. This becomes much easier if you are a company director and the business is a limited liability company. This is because the legal setup is already in place, and there are records to show your profits and income for anyone to see.
You can even remain as a company director after selling the business if you choose to – and if the new owners agree to this. This means you can still receive dividends regularly and have an income, despite having sold the business and receiving a lump sum for that transaction. This is highly unlike to happen if you were to sell a sole trader business. Selling a business that is not limited is especially difficult because, in many cases, the business is the owner and vice versa; there is certainly no differentiation in terms of the law.
Greater Job Satisfaction
It’s massively important to have good job satisfaction in your work. Enjoying your work and feeling happy with what you are doing means that you can be more productive and strive for more within your job, no matter whether you are at entry level or you’re a director of a company.
Most company directors will have chosen that path, and that is a big help when it comes to job satisfaction; being able to choose what you do is a vital component of being happy in life and your career, after all. Therefore, most company directors will work very hard and have amazing job satisfaction as a result.
Good job satisfaction leads to happiness in all areas of life, helping you to have a good work-life balance, even if you are working hard to run and grow your business. You’ll have many more opportunities to reach for your goals and achieve what you want to achieve, and so the cycle of happiness and positive feeling will continue.
You’ll Keep Learning
As a company director, you must keep learning. You need to be up to date will all the new business practices, laws, and innovations in technology, and you’ll need to ensure you understand any specific changes within your industry as well.
All of the above means that you’ll keep learning – you’ll have to if you want to keep growing your business. Continuous learning is good for your brain as it keeps it active and may even reduce the chances of developing a cognitive impairment condition. It’s also good for you because it keeps you interested in what you are doing, and it ensures that you’ll always have the best interests of your business at heart – you’ll want to do more and keep doing more to make sure things go well.