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Setting up a new business under a limited company formation may not be as popular among budding entrepreneurs as going down the sole trader route, but it certainly has its benefits.

In terms of accountancy for a limited company, there is a greater chance you will pay less personal tax through a company formation than you would if you were working as a sole trader. As company profits are subject to Corporation Tax and if you are the director and shareholder of the limited company, you may choose to take a salary from this. By choosing to do this, you will pay less National Insurance Contributions and PAYE. Alternatively, as a sole trader your entire income may be subject to PAYE and National Insurance Contributions.

In terms of tax, under this limited formation, the company is treated as being completely separate from its shareholders or members. Everything from company assets to bank accounts is treated separately which may be beneficial if members want to keep their home and work lives (and money) separate.

By running a limited company you are protected by law if anything goes wrong. In other words, you will not be held personally responsible or liable if any financial losses are made by your company, unless there have been illegal dealings of course. Sole traders on the other hand, do not have this protection.

Although thanks to the economic recession, it has become more difficult for any new company to be set up, limited businesses are generally considered easier to secure funding. Likewise, they may also be considered to be more professional than sole traders. Once registering the company with Companies House, the name is also protected by law which means that the same name (or anything considered too similar) cannot be used by another company.

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