What is a Limited Company?

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What is a private Limited Company (Ltd)?

A private Limited Company (Ltd) is an individual legal entity which is separate from that of its officers. A Limited Company has its own assets and liabilities, profits and losses. The liabilities are limited to the company. In other words, the officers are protected from financial liability should the company encounter any difficulties. This differs from those of a sole trader or partnership, where the assets and liabilities of the business belong to the individuals.

Ownership of a private Limited Company is established through the division of shares. Unlike a Public Limited Company (PLC), a private Limited Company is restricted from selling shares to the public. Limited Companies must also submit annual accounts to Companies House which are made available to the general public.

Is there more than one type of company?

Yes. There are four main types of company:

  • Private Company Limited by Shares– this type of company has a share capital and the liability of each member is limited to the amount unpaid on shares that a member holds. A private company cannot offer its shares for sale to the general public. You can set up this type of company using Tax50.
  • Private Company Limited by Guarantee– in this type of company, members do not make any contribution to the capital during its lifetime as they do not purchase shares. The members’ liability is limited to the amount that they each agree to contribute to the company’s assets if it is wound up. You can set up this type of company using Tax50. There are also still a few “companies limited by guarantee with a share capital” but it has not been possible to form these since 1981.
  • Private Unlimited Company– this type of company may or may not have a share capital and there is no limit to the members’ liability. Because there is no limitation on members’ liability, the company has to disclose less information than other types of company.
  • Public Limited Company– this type of company has a share capital and, the liability of each member is limited to the amount unpaid on shares that a member holds. A public limited company may offer its shares for sale to the general public and may also be quoted on the stock exchange.

What are the advantages of trading as a Limited Company?

Perhaps the most attractive benefit of trading as a limited company is the aspect of limited liability. Essentially this protects the personal assets of the officers should the company run into financial difficulties.

Many of the costs and administrative requirements associated with running a limited company are now not much more than those of a sole trader or partnership. Limited companies also instil added confidence in suppliers and creditors; many large organisations will only conduct business with limited companies.

Finally, the ownership of a limited company can easily be divided up through the sale of shares. The shares can be further used as a means of generating capital or further reducing your exposure to HMRC and personal taxation.

Who can set up a Limited Company?

Any individual of any nationality may register a limited company subject to a few conditions:

  • They are not an un-discharged bankrupt
  • They have not been restrained by court order
  • They are not subject to UK government restrictions

Can anyone be a Company Director?

Under the Companies Act 2006, every company has to have at least one director who is a natural person (or individual). In other words they cannot all be ‘corporate directors’. Since 1 October 2008, the minimum age for a director is 16 years old.

What is the difference between Shareholders and Directors?

The directors are responsible for the day to day running of the company and ensuring it meets its responsibilities and deadlines. The shareholders own the company and have the right to vote on many issues. The extent of ownership and level of voting rights are based on the percentage of issued shares they own. An individual can be both a director and shareholder of a company.

Do I need a Company Secretary?

Since 6th April 2008, a private company has the option whether or not they have a company secretary. It is no longer a mandatory legal requirement.

What information do I need to set up a Limited Company?

To set up a Limited Company you will need the following information:

  • A unique name for your Company
  • A Registered Office address (Sterling House is our recommendation)
  • At least one Director willing to accept the associated duties and the responsibilities
  • At least one Shareholder willing to buy a single £1 share in the company. They can also be a director or secretary.
  • Key information for each director, secretary and shareholder: town of birth, eye colour and Mothers maiden name

I don’t live in England. Can I still set up a new company?

Yes. The officers of a company may be resident outside the UK; however the Registered Office Address of the company must be situated in England, Wales, Scotland or Northern Ireland.

Does registration of my company name also mean that my trademark is protected?

No. Company law is different from trademark law. You cannot stop someone using a trademark which is the same or similar to yours merely by registering your name with Companies House.

For further advice on trademark registration phone the UK Intellectual Property Office (IPO) on 0300 300 2000 or visit the website www.ipo.gov.uk.

What are the Memorandum & Articles of Association?

These are statutory legal documents that define how the company is regulated and what protocols it must follow in its day to day business.

From October 2009 a limited company can choose to adopt the Model Articles of Association. The Model Articles where brought in under the final implementation of the Companies Act 2006. The new articles present a clear and concise framework that enables the directors to coordinate meetings, issue shares and pass resolutions (amongst many other things). The documents are drafted in plain English and adopt the “Think small first” approach to managing your company.

What are Shares and how do they affect a Limited Company?

Shares are a way of putting capital into your company. They also determine the level of control the shareholders (share owners) have over its operations through voting power.

Deciding how you divide the shares is vitally important; you need over 50% of the shares in order to control the company.

From October 2009 all companies must provide a statement of capital on incorporation. The statement of capital sets out the nominal value of the shares, the currency and the aggregate value of issued capital and sums paid. The percentage of the issued share capital owned by each shareholder determines their interest in the company. If you would prefer a controlling interest in the company you must own over 50% of the shares in issue.

What are Share Certificate’s and what details must they include?

Share certificates are receipts issued to shareholders for each share purchase made. You must include the following details on your share certificates:

  • The company name
  • The type of share you are issuing
  • The name and address of the shareholder
  • The number of shares (in words) that are to be assigned to the shareholder
  • The value of the share
  • A signature from a director and secretary (where appointed) of the company

What kind of accounts and records must a company maintain?

All companies are required by law to keep a full record of income, expenditure, assets, and liabilities. These records must be kept safe as they will assist you in attending to your duty of returning the companies annual accounts. Tax50 can help guide you in this matter and in most cases also provide you with templates you can use to make record keeping easier.

Do I need to return any documents annually?

Yes, you must provide a number of documents following your ‘Accounting Reference Date’ (ARD). This date is usually the last day of the month your company was incorporated and occurs each year; it is the date that your financial year ends where the accounts are to be made up to. You have 9 months from your ARD to return the following documentation to Companies House:

  • A profit and loss account (or income and expenditure account if the company is not trading for profit)
  • A balance sheet signed by a director
  • An auditors report signed by the auditor (if appropriate)
  • A directors report signed by a director or the secretary of the company
  • Notes to the accounts
  • Group accounts (When necessary)

Where eligible, medium-sized, small, very small and dormant companies may prepare and file ‘abbreviated accounts’. Small companies (with a turnover of less than £5.6 million [£250,000 for companies that are charities] and assets of less than £2.8 million) can also claim exemption from audit.

What is the Companies Act 2006?

Companies Acts set the legal framework in which Limited Companies must work. The Companies Act 2006 was introduced to modernise company law. The changes in the Act were implemented in phases and this modernisation of the Companies Act was completed by October 2009.

Further information about Limited Company’s can be found at the Companies House website here: Limited Company