A Limited Company is a corporate entity with a separate legal personality to those that own and control it. Having a separate legal personality means that the company can enter into contracts and hold assets in its own name.
The word ‘Limited’ refers to the limited liability that a Limited Company affords its shareholders; the shareholders are only responsible for the debts of the company up to the value of their shares in the company.
A Limited Company only exists once it has been incorporated. Incorporation, or company formation, is the process of registering the company with Companies House – The Register of Companies for England & Wales, Scotland and Northern Ireland.
The most attractive reason for forming a Limited Company is for the protection of limited liability. A sole trader can be held personally responsible for the liabilities of his business, even to the point that he may be forced into selling his personal assets in order to satisfy those liabilities (if not adequately insured). In a Limited Company it is the company that is liable and the liability of the shareholder is capped to the amount paid (or agreed and due to be paid) on the shares that he has subscribed to.
As companies are taxed under corporation tax, while sole traders are taxed under income tax, there is likely to be a difference in your tax liability depending on the route you take. You should speak to your accountant to see the effects for your personal circumstances, but this difference could be favourable, despite George Osborne’s new tax on share dividends.
Trading under a limited company does provide an element of status and can cultivate a greater level of trust from the public than you might expect as a sole trader. As explored below, there is a requirement for increased transparency when operating a Limited Company and this transparency can grant your clients an extra level of confidence in your legitimacy. In fact, some companies will only enter into contracts with other Limited Companies, dismissing sole traders.
The name of every Limited Company must be unique and there are even rules regarding a name being too similar to another on the register. This means that if you register you trading name as a Limited Company then, regardless of whether you actually trade through the company or not, no one else can incorporate with your name.
The sacrifice you make for limited liability is the disclosure of certain information regarding the company, its officers, its owners and its finances.
When you incorporate a Limited Company you must provide Companies House with information on the director(s), including their full name, home address and date of birth, as well as name and address details of the shareholder(s). You must notify Companies House of any change in the officers, or their details, as it happens. Each year you must also provide an Annual Return (soon to become the Annual Confirmation Statement) confirming these details as well as Annual Accounts.
Fortunately Companies House do provide some protection for directors’ personal details, allowing them to provide an additional ‘Service Address’ for publication on the company register in place of their home address, and by supressing the day of their date of birth.
Additionally, the smaller your company, the less detail is required in your Annual Accounts, often just requiring a balance sheet to be filed.
The proceedings of a limited company are governed by its Articles of Association and the Companies Act 2006. These lay down many procedures to follow for different situations and also require you to retain certain information in your Statutory Registers. It may take some time to familiarise yourself with these rules.
Accountancy fees are generally a little more expensive for Limited Companies than they are for sole traders as the accounts are slightly more complicated.
On the whole, we feel that the benefits of a Limited Company outweigh the disadvantages.
You can form a Limited Company quickly and easily on this website by following our simple online order process:
The first step is to check if the name that you want to use is available. You can use our name checker tool here to check availability and also to check for any regulated words or expressions that require further justification.
Once you have selected a name, choose from our selection of formation packages, which start at just £16.99 + vat. You can view our selection of packages here.
Enter your card details and make payment.
Finally, enter the details for the company required for registration at Companies House:
This is the official address of the Company where all Companies House and HMRC correspondence will be sent.
The shareholders are the owners of the company; they appoint the directors to run the company on their behalf. The directors manage the day to day business of the company and are legally responsible for it. In small companies the directors and shareholders are often the same people, but in large companies you would usually expect some separation between ownership and management.
Secretaries are optional for private companies and deal with the corporate administration, such as minute taking and filing forms with Companies House. If the company does not have a secretary then these responsibilities will fall on the directors.
Companies House require for incorporation the name and address of all directors, secretaries and shareholders of the company and require additional details for the directors including Date of Birth, Nationality and Business Occupation.
For shareholders you will also need to specify the number of shares the shareholder will be purchasing from the company. The split of shares across shareholders will define their proportion of ownership, control and dividends.
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