Partnership Going Ltd Is It Worth It??

[itsmefolks]

My partner and I started a business 2 years ago with equal money and equal everything. We expect to have a turnover this year of £250 to £300k.
With profit of £100 to £140k. We are having a meeting this week with the accontant to discuss our options and if it would be worth while financially. Does anyone know what we should be asking, and anything we need to know?? Many thanks in advance.

[pixie373]

How did you work out your turnover originally? Something has been misjudged if your figures are very different from what was projected. Depending on your expenses, those profits look worthwhile split between two!

[FredPuli43]

The benefit is the limited liability that a limited company brings. At present, you two are liable for the debts "right down to your collar stud" as we used to say, but collar stud includes everything you own. With the limited company , only the company has the debts, not the shareholders or directors, though they may lose their investment in it and banks may ask directors to personally guarantee loans to the company.

Solicitors often have a limited liability partnership, rather than a company or ordinary partnership, but I suspect that your accountant will say that doesn't apply to you.

Ask about the tax advantages and any disadvantages. You can be paid a salary by the company, as a matter of course, and also draw dividends from the profits in accordance with your shareholding. Ask about corporation tax. Companies don't pay income tax or capital gains tax and the rates of corporation tax are lower than for those. Those companies treated as small companies (and that covers companies that most people would regard as not really small) are particularly well-treated. Companies don't die, so they don't pay inheritance tax, and neither do the owners' estates on their deaths, assuming that the company is trading and not debarred from relief of 100 per cent being given (some companies are) .

[itsmefolks]

Phew!! Cheers for that. Very understandable. Lot of useful information. Cheers again for the time you took.

[HongKongphooey]

The biggest advantage is if anyone for any reason decides to sue you, if you are ltd your personal assets ie house, car, and anything else you own personally are all safe and cannot be touched, thats why my partner opted to go ltd about 8yrs ago. In this day and age, with people easily being sued we felt it was worth it for peace of mind. The disadvantage is you will be liable to corporation tax every year on any profit, I think its around 21%. Ask your accountant, but on your estimated profits its a heafty wack, due every January. This can be offset by paying yourselves each a small salary under the tax threshold so you don't incur any personal income tax. Then you top it up by taking dividends when you want. Dividends don't incur much tax, another thing to ask your accountant about. So for instance you can pay the director £600 per month, but top it up with £1500 dividend each month. This would mean the Director is only getting a salary of £7200 a year and the accountant will be able to calculate the small amount of tax liability on the dividends.If you are a partner, you can take dividends as well. So you'll have to weigh up the pro's and con's and discuss it with your accountant. He'll be able to advise on the best decision for your business.