5 Tips to decide if you should think about incorporation?

Since the 0% starting rate for corporation tax was abolished fewer businesses have been wanting to incorporate. Admittedly the £10,000 of corporate profits which were taxed at 0% was a big incentive for businesses however there are still good reasons to incorporate.

Here are our top five reasons for considering incorporation:

  1. Tax efficiency – It is still one of the more popular reasons to consider incorporation. Not only do companies enjoy a corporation tax rate of 20% but they also allow the shareholders some flexibility over the timing of their income tax. A good example will be a business looking to expand, by using this tax efficiency, they can use the tax saved to invest where needed.
  2. Reduction of Liability – Companies limited by shares can reduce the owner’s liability. There are some misconceptions regarding this; it is rare for a small to medium sized enterprise (SME’s) to limit the shareholders’/directors’ liability entirely. Normally a landlord will want personal guarantees from the shareholder’s/directors’, as will finance providers. That said, managed properly there are definite advantages with regard to reducing the owners’ liability.
  3. Business Sale – If a business is to be sold in the future, then it is common to see it incorporate. This would normally allow a “simpler” sale however this is not always the case. If it is a business which is likely to be purchased by another business, then an incorporated structure would normally be preferred. Looking to incorporate immediately before a sale is not ideal as it adds another layer of complication whereas if it is planned and carried out well in advance, it will make things easier when it comes to the sale.
  4. National insurance – Shareholders can receive dividends and these do not attract national insurance. This potential saving can make a huge difference to the owner/shareholder. This saving may allow the owner to take less from the business meaning more money for working capital, etc.
  5. Finance – Obtaining conventional finance for unincorporated  businesses is not normally a problem however finding an outside investor who is willing to invest in an unincorporated business is extremely rare. An “Angel Investor” or someone looking for a stake in the business will typically prefer an incorporated business.

If you are interested in finding out if your business would benefit from incorporation then please contact Shane Cann or Catherine Dymond on 01392 432525 or pop into our offices at 2 Barnfield Crescent, Exeter, EX1 1QT.

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