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Private Limited Company Versus Sole Proprietorship

A private limited company Limited company formation information firstly will enable higher savings and income in terms of tax revenues as compared to a sole proprietorship. And the list of advantages includes tax savings too. The main reason for a private ltd company being better than sole proprietorship is the fact that the level of flexibility is more. It is only in a private company that you get to decide salaries and dividends and thus minimize the net profit figures so as to save tax. In sole proprietorship the tax limits and slabs are fixed.

Here is an example to prove the same. When a sole trader makes a profit of say 35,000 pounds the tax percentage that he is supposed to pay is 20 percent. Whereas if a private limited company makes the same amount of profit and distributes it amongst his partners as dividends the same tax percentage is reduced to 10 percent. Also, some amount of money can even be distributed as salaries to further save on tax.

One thing that should be kept in mind while setting up an ltd company is that the accounting systems are very different from those of a sole proprietorship. A proprietorship does not in fact require any formal accounting system and for reference simple lists of incomes and expenditures are maintained and the same are supported by documentary evidence in the form of purchase invoices and sales invoices. This is also called as single entry book-keeping.

For a private limited company the accounting system used is called double entry book keeping. In this system a balance sheet has to be produced at the end of the financial year and the same must contain statutory statements and notes wherever required. Therefore, many private limited companies either use the latest accounting software for the same or hire an accountant to take care of the financial accounting and tax payments of the firm.

 

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