Last updated Feb 06, 2024 and written by Aditi Mohan

Do I need a limited company for an online business?

So you’ve started your own online business, or maybe you’ve had one running for a while and the hard work is beginning to pay off. What’s next? You may want to start setting your business up for future growth, one way to do so is to incorporate as a Limited Company. As an online business, it is not necessary to incorporate. However, becoming a Limited Company could be the perfect next step.

Benefits of becoming a Limited Company

Being a Limited Company comes with its own benefits, from protecting your business name to an added professional edge. 

Legal Protection and Limited Liability

Limited Liability means just that. Once incorporated with Companies House, your company and you are considered two separate legal entities. This means if the worst were to happen and your company goes under, your personal assets and credit would be unaffected. You would only be liable for the money you originally invested into your business.

As a business owner, this can give you some extra peace of mind. If your online business faces any financial challenges, you and your personal assets are unaffected by the debt.

On the other hand, if your business flourishes online as its director and shareholder you can reap the benefits via dividends. 

Limited Companies Add Extra Credibility 

Operating as a Limited Company adds an extra layer of credibility to your business. Many customers, financers and competitors perceive limited companies as stable and regard them as capable of taking care of certain legal and financial responsibilities. Limited companies also have to adhere to deadlines to stay compliant. This added credibility can boost trust among potential clients, partners and investors.

In volatile marketplaces, such as online businesses, having a trustworthy business can give you a competitive edge and help you build a loyal customer base. Customers may be more willing to purchase goods and services from you as they can trust you are a legitimate, compliant and credible business.

Access to Funding and Investors 

In any business’ lifetime, you may choose to scale up your online business and this may require funding. As a Limited Company, you may have greater access to funding, due to the requirements around funding and loans. As a Limited Company, you can offer shares in exchange for outright investment, which is not possible as a sole trader.

Secondly, the added credibility of being a Limited Company also translates to banks, VCs and investors trusting you and your company. You can bring a certain level of responsibility just by being a Limited Company. 

Limited Companies Are Easy To Alter

As well as scaling up through funding, your online business may grow and you may want to take a step back as its Director and Founder. A Limited Company can exist independently of its owners/directors/shareholders, which means you can take a step back from your company (or even sell it) but it can continue to exist. This may be a great plan if you see high growth for your online business but want to continue working as an entrepreneur and keep creating new and exciting ventures.

Secondly, if your company is impacted by shareholders leaving or a change of directors or People of Significant Control your company’s reputation and brand identity remain unchanged as it's a separate entity to those who own and run it. 

Personal Income Flexibility 

As the director and shareholder of a Limited Company, you can pay yourself dividends and a salary. As dividends are taxed at a lower rate, you can reduce your tax bill and improve your income by being more tax-efficient.

Secondly, as a Limited Company, you can have greater control over your expenses. This means as an online business you can expense things such as your WiFi, and any additional equipment you may have such as laptops, monitor screens or even a desk! This can help you save on some hefty start-up costs and reduce the cost of any future upgrades. Expensing can help with tax efficiency by reducing your profit and corporation tax.


Form Your Company Today! 

Forming as a Limited Company has a ton of advantages, particularly if you are hoping to grow your online company to great heights! Are you ready to take the plunge today? Our company formation packages can set you up on the right foot and ensure you have everything you need to start your company today.


Disclaimer: This blog is for general information and is based on our understanding at the time. For more accurate information and advice please speak to an accountant.