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At some point of time, a sole trader or partnership will opt for business incorporation. The good news is that as of October, 2009, business incorporation in the UK is becoming easier and more profitable to companies.

Business incorporation – Pros

There are many factors that make business incorporation attractive to business owners. Low taxes and easier financial accessibility are noteworthy. Increased profits also play a part. Many small business owners have made considerable savings on taxes by minimizing the salary paid to owner and increase income through dividends, which attract lower taxes. Significant cash benefits may be derived from additional tax deductibles. For instance, entertainment and medical expenses, travel costs, recreational facilities and pension costs are all tax deductible.

So, if you have decided to set up a limited company, here's what you have to do:

In the UK, the Registrar of companies is the Companies House. Before the company you set up can begin functioning, it must be incorporated by the Companies House. Only then is the new company you set up a legally recognized corporate body.

The registration process is not overly difficult. However, it does involve the submission of many documents that require precise data. Sufficient awareness of what is required is necessary for this. In case of doubts, it is better to approach a formation agent (cheapest option), solicitor, company secretary or accountant. In this regard, it must be noted that the new Companies Act of 2006 came into force in October 2009. Therefore, there are some changes that affect both directors and shareholders in the new company set up.

The consequences:

• A huge backlash on small business who lose clients and are lumbered with bad debt (i.e. they are the creditors who have been dedicated to providing the products and services to help the business owner do his business)

• The employees who have worked hard to help the business owner keep his business going and thriving in the past – don't get their salaries, get no real notice and get very little in compensation

• The business owner actually has to 'start all over again' because no-one wants to touch him or his business because of how he let them down

So, I guess my message to the business owner who is considering this path of 'recovery' is to use a healthy balance of good business sense and being compassionate to the parties involved. I realise that sometimes business owners have to take drastic measures to save their businesses, but my only wish is that they engage their employees in the move and be more empathetic to the impact it has on them and the creditors too.

I may be naive, but I do think that great business leaders consider every one of their actions before they take them and step forwards in the best way to lead others carefully to the other side of troublesome situations

Resource Author Francisco R. Higueras
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Tags: Corporations