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.

 

WHEN

  • 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:

  1.      The liability of the shareholders can be limited to nil.
  2.   The company is immortal. The death of directors or shareholders need not disrupt the company’s business.
  3.   The ownership of assets remains constant, while share ownership changes.
  4.      There are established rules of company law governing the functioning of the company.

These are the major disadvantages of becoming a limited liability:

  1. The initial cost of incorporation is high.
  2. There are various obligations to be met; you must appoint directors and a company secretary.
  3. 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.
  4. You have more taxes to pay such as Green Fund Levy, Business Levy and Corporation Taxes on a quarterly basis.

 

“A business that makes nothing but money is a poor business.” – Henry Ford