When you’re starting your entrepreneurial journey it might seem strange to be talking about liability, but it’s important to think of the downsides and plan to mitigate them.
One way to do this is in the structure of the business entity you set up and forming a limited company might be good for you – it has been for me. A private limited company (for example ABC Ltd) means that your personal finances are separate from the business’s finances and your suppliers and customers do business with your company, not you, and are paid by the company, not by you.
It also means that if something goes wrong and you are sued, it’s your company that is sued and not you personally, so your personal assets, like your house, are not at risk. This may change if you offer a personal asset, like your house, as collateral for a business loan.
There are other advantages of having a limited company, like paying a lower rate of corporation tax rather than income tax, having company bank accounts, being able to sell shares and being able to be sold on as an entity when the time is right.
If your business is in legal or accounting services you might do the equivalent in a partnership, which is to set up a limited liability partnership (LLP).
One drawback with a Ltd company is that you are visible at Companies House and you have to submit accounts each year that can be seen by anyone. But doing your accounts is important and visibility is a small price to pay.
So remember – protect yourself and go limited.
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