Forming a limited company

You could form a limited company if the limitation of liability is an important consideration – but do bear in mind that banks and other creditors often require personal guarantees from directors for company borrowings.

Trading through a limited company can be an effective way of sheltering profits. Profits paid out in the form of salaries, bonuses, or dividends may be liable to top tax rates, whereas profits retained in the company will be taxed at rates from as low as 21% (20% from April 2011).


Retained funds can be used to buy equipment or to provide for pensions – both of which are eligible for tax relief. They could be used to fund dividends when profits are scarce (spreading income into years when you might be liable to a lower rate of income tax?) or capitalised and taxed at 10% or 18%/28% on a liquidation or sale. Forming a partnership with your own limited company or introducing limited partners into your partnership or limited liability partnership (LLP) can create tax-saving opportunities.


An increasing number of businesses have incorporated, or introduced limited partners, but there are important implications which we would be happy to discuss with you, before you decide whether or not to incorporate your business.