If you’re a freelance graphic designer, here’s why you should incorporate a limited company

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If you're a freelance graphic designer, here's why you should incorporate a limited company

The benefits of life as a freelance graphic designer are plain to see. You get to work on your own terms, on a schedule that suits you, and claim better pay for your projects than if you were to operate through an agency.

But there are a number of areas to creating your own business that you may not have considered yet. One area in particular, which can open your business up to potentially much wider profit margins, is to incorporate as a limited company. But what exactly does this mean? Here, we’ll take you through what being a limited company can do for your business, and how you do it yourself.

Life as a limited company

Many graphic designers worldwide have embraced the transition into a freelance career. At this time of increased interconnectivity and technology, you can complete projects and tasks that wouldn’t have been thought possible through remote work at the turn of the century. But lots of workers have shied away from taking the next step in becoming a limited company, so what are they missing out on?

Well, limited companies help take the liability away from business owners. Whereas a sole trader is responsible for managing your debts — meaning your assets are at risk if you fail to keep afloat — limited companies are seen as a separate entity from their owners. This helps to give you added protection should the worst happen.

Fundamentally, a limited company is a type of business structure that has been incorporated at Companies House as a legal ‘person’. This means that it can enter into contracts in its own name and will be responsible for its own actions, finances, and liabilities.

Limited companies must be registered at Companies House (the UK registrar of companies) as ‘limited by shares’ or ‘limited by guarantee’. A limited by shares company is owned by one or multiple shareholders and managed by one or multiple directors. Whereas, limited by guarantee companies are owned by one or more guarantors as well as managed by one or more directors. The same person can be the owner and director, meaning that you can set up a company by yourself or with other people.

Not only will your business be legally considered separate from yourself, but you’ll be able to keep any profits it makes after paying tax — meaning that the running costs of your company are likely to be considerably lower than that of a sole trader entity.

Limited company vs sole trader: which to choose?

Setup costs and taxation
Setting up a sole trader company is a straightforward process that carries no setup costs or limited company formation fees. Sole traders can also expect to pay less in hiring accountants. Limited companies, on the other hand, will cost money to get set up, but owners are likely to benefit from significantly better tax planning opportunities — a perk that sole traders won’t have access to.

On the subject of taxation, sole traders will only have to submit one tax return each year, while limited companies need to file their accounts at Companies House each year — which will be on public record.

Risk and liability
Sole trader businesses are a well-trodden and reliable path for freelancers that are just starting out. But the aforementioned higher personal risk can cause companies to come unstuck early on. There’s less danger for limited business owners with higher ambitions when it comes to the seizing of their possessions due to unpaid bills.

Limited companies also carry better liability protection when it comes to lawsuits. In the world of graphic design this could be vital if, for example, someone files a claim that you’ve stolen their artwork. Your assets will be protected no matter the outcome thanks to your company being regarded as a separate entity to yourself.

Looking professional
A final definite perk of establishing a limited company is the more attractive proposition you pose for potential clients. Being an ‘ltd’ gives off a more professional look to your business. Some customers, usually PLCs or larger limited companies, will actually only work with a business if it’s incorporated.

It’s advisable to assess your aspirations before deciding on whether or not to take the plunge and incorporate your company. The setup costs are greater and ultimately more lengthy process — as is the case with taxation. But as long as your business aims to grow and attract reputable clients, this could prove to be an essential step in a much larger business venture.

The path to incorporation

If you’ve decided to take the step into becoming a limited company, the process of becoming incorporated can seem like a burden at times. Luckily, we’re here to help. Whether you’re just looking to incorporate, or sort out any admin and accounting, our formation packages can take the stress away from the formal parts of setting up your company. If you’re interested in finding out more, just head over here for more information.

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