At the present time, there are many ways to run a company in regards to several business models available that can be chosen by those who run such enterprises and where they want it to go, in terms of general success, niche or industry, characteristics and more. Of course, it is not the same to run a large grocery company than a little technology firm or store.
Now, the business model to choose from is a very important decision to make; and at least in the United Kingdom, there are two that are the most utilised as having a great influence on the whole spectrum of the economy: specifically, we are talking about limited companies and Umbrella companies, both with great differences and approaches but becoming the preferred among the business world in countries of the UK and overseas.
Let us make a comparison between the two business models available, as one is more traditional and well-known, while the other is more innovative and recent in terms of approach and of course, characteristics. However, before comparing the limited companies and Umbrella companies in every aspect, the logical thing to do is to first explain the concept and what these two business approaches are.
Concept of Limited Companies
To begin with, a limited company is one of the most traditional approaches to start or address business, where the actual enterprise acquires the characteristics of a financial entity, which is separate from its owners, executives, workers and general people responsible for it it.
In this way, expense and income procedures are related to the company and not the owners, who have their financial entity separate from the enterprise itself. This is one of the most used business models across the globe, since it is easy to apply, traditional and offers quite a set of organisational and financial advantages that are simply appealing.
The advantages have to do with being legally and financially separated; as well as it was said before from the company, for which is also possible to own assets, goods and more importantly- keep profits and earnings after tax. Among other benefits, limited companies have proper names and addresses and they usually involve plenty of shareholders and an established capital and investments system.
From the entrepreneurs´ perspective, limited companies are a hard business model to pick since there is the need for influential investors, shareholders and an almost established idea and product to start from.
On the other hand, from the view of the workers and employees, in general, the limited companies provide plenty of positive characteristics, such as medical insurance, paid vacations, maternity rights and other benefits which entrepreneurs and freelancers do not usually get to enjoy.
Definition of Umbrella Companies
Umbrella companies correspond to a more recent, modern and entrepreneurial approach for business, which has been very successful at least in the countries of the United Kingdom. In this type of company, personal hiring is very different and is based on employment contracts, so independent professionals and freelancers are targeted to work on them.
Most Umbrella companies use the financial approach of Pay As You Earn or PAYE, which allows workers to be paid and charge exactly the time they spend on a project asked by the clients of the company.
Therefore, workers and professionals get to be contractors and become employees of the Umbrella company, which will be able to manage their administrative procedures, taxes, payrolls and accounting information, all for a fee or monthly quote. This is usually done because independent workers and freelancers do not want to give up the way they work, completely uncommitted to office time and schedule.
Among the benefits, Umbrella companies provide the workers with benefits that are similar to permanent work in terms of insurance, contracts, paid vacations and maternity rights, and the management of managerial data such as tax deductions, payroll, HRMC duties and more. All features related to Umbrella companies are great from the workers´ point of view.
Also, Umbrella companies are usually the type of business model chosen by entrepreneurs and small companies in the UK as they are capable of providing work to independent workers at less cost and on behalf of the company, since contractors are like employees of the company, also known as contractors.
Along with the main difference in the approach on how to hire staff with hassle-free work, Umbrella companies keep having the relation as a financial entity to the owner, so such corporations at the eyes of the law are now able to own assets, goods or separate the profits out of those that the owner may have.