A client asked me a few days ago, when is the best time to move from a sole trader to a limited liability and what are the advantages and disadvantages of doing this.
- With the new V.A.T. threshold increased to Five Hundred Thousand Dollars ($500,000), should wait until your company’s annual income is above that threshold.
- If your company is rapidly growing and in requires capital to expansion such as to purchase new equipment to meet customer new demands and for building a warehouse or office space.
- The need to hire additional man-power to satisfy your customers demand for your products and services. This is directly linked to the above point.
THE ADVANTAGES AND DISADVANTAGES OF BECOMING A LIMITED LIABILITY
First thing, a company is a legal fiction; it doesn’t exist naturally, but has all the rights of a legal person.
These are major advantages of becoming a limited liability:
- The liability of the shareholders can be limited to nil.
- The company is immortal. The death of directors or shareholders need not disrupt the company’s business.
- The ownership of assets remains constant, while share ownership changes.
- There are established rules of company law governing the functioning of the company.
These are the major disadvantages of becoming a limited liability:
- The initial cost of incorporation is high.
- There are various obligations to be met; you must appoint directors and a company secretary.
- Every year you must file a company profile or annual return which is Forty Dollars ($40) every year. A late fee of Three Hundred Dollars ($300) every month you are late will apply.
- You have more taxes to pay such as Green Fund Levy, Business Levy and Corporation Taxes on a quarterly basis.