Hi there, Nicholas Campion here from 1st Formations and welcome to another episode of Whiteboard
Thursday, where we provide advice on a wide range of business and company matters. So if you want
to keep up-to-date with our insights, advice and inspiration, then hit that subscribe button. But
for now, let's get started. So today we're going to talk about the real reason you should form a
limited company. If you're running a business as a sole trader and you are not a limited company,
you may find the blunt truth of what I have to say uncomfortable, but please hang in there, because you
need to know this. One final point before I get into it - this video is not about selling limited
company information. Yes, 1st Formations is a company formation agent; however, the point of
this video is for you to learn and accept some basic business truths that we at 1st Formations
have discovered by interacting with our hundreds of thousands of business customers
over the years. In the first instance, let's quickly get out of the way the generally accepted benefits
of a limited company. And the first of which is limited liability. Yes, you do greatly reduce
your personal financial risk if you trade as a limited company, as the debts of your company are
separated from your personal finances. Next is tax and national insurance benefits. A limited
company provides scope to pay less of each of these. Then we have the protection which
is afforded to your company name by registering it at Companies House; something that you can't do
as a sole trader. And finally, if you want to retire or sell your business, it is normally much
easier to transfer ownership in a limited company, rather than in a non-registered business. Okay, so
those are the well-known advantages of forming a limited company. But what is the real benefit
of forming one? Quite simply, the real benefit and number one reason for forming a limited company
is to get taken seriously and to survive the first year of its business life. The first year of
a business's life is often precarious, with one or two of the big decisions that you make being the
difference between survival and failure. This may be hard to swallow for a lot of people out there,
but the business truth that you need to learn and accept is that no one wants to deal with a
very small company if they can possibly avoid it. By very small company, I'm talking about the one
person business, unregistered companies, sole traders, and businesses operating from home.
The truth is, everyone would much rather deal with a large and established company,
because they trust that that type of business will deliver what they promised. In business terms,
size does matter! Being a big business means that it's probably been around for a while, and
if it's been around for a while, it's probably because it's successful. And if it's successful,
it's probably because it's good at what it does, right? Well probably. When someone is choosing a
company to supply them with something, the main thing on their mind is to reduce risk. They want
to avoid something going wrong. And even if it does, they want to feel secure in the knowledge that the
company they've chosen is capable of dealing of fixing it quickly, with no hassle and no additional costs.
Most people's perception of big businesses is that they have the resources and willingness
to do these things, whilst small businesses don't. So, having identified the stark truth that people
would rather deal with a big and established company, how do you avoid prospective customers
dismissing your small businesses before you even get a chance to speak to them? Well, one way is to
form a limited company in order to get the words 'Limited' or 'LTD' at the end of your business name. If
you don't have 'LTD' or 'Limited' at the end of your business name, you are recognized by everyone as a
sole trader or unregistered company, and that is a telltale sign of being a small micro-business that
may be affordable, but is high risk to deal with, and may not have the track record of delivering as
promised. OK, let's ask ourselves a quick question - are all big and established businesses trading as
limited companies? And the simple answer is - yes they are - unless of course they are LLPs, which
are also registered at Companies House. If you are in the business to business sector, you'll find it
even tougher getting customers if you do not have limited or ltd at the end of your business name,
as established companies and larger organisations have policies regarding which companies they will
enter into contracts with and will usually refuse outright to deal with unincorporated businesses.
OK, so you might be thinking that's very unfair, and you disagree with our 'big business'
scenario. You may hold the opinion that some people prefer to deal with small one-person businesses
because they're more personable. This may be right in certain circumstances; however, there is
compelling evidence to suggest that the majority of people have good reasons for preferring to deal
with limited companies. For example, someone who forms a limited company wants to do
things properly and create an ownership structure. They're prepared to pay more for annual accounts,
and they're happy for their company's details to be displayed on the public record. They also have
a desire to access lending opportunities, and to build a bigger business from a solid foundation.
There is no getting away from it - if you do not trade as a limited company, you dramatically
increase the chances that you never get those crucial early customers or business contracts,
which could be the difference between survival and failure in the first year or two. The fundamental
fact is - confidence is critical in business, and a limited company has a coating of professionalism
which can infuse confidence in your business and add that much-needed ingredient - credibility.
So there you have it. I hope this video has been of some help, and has not offended you.
For me, success in business is about learning lessons, and not getting upset and offended.
The reality of the business world is something we all need to accept, rather than to reject or ignore.
If you have any questions about what we've covered today, please ask in the comments section below,
and we will get straight back to you. In the meantime, be sure to subscribe to our channel
to get more tips and advice on limited companies, reporting requirements, tax obligations and more.
We're always happy to help, and we can't wait to hear from you. Until next time, cheerio.