What is a Limited Company?


A Limited Company (LTD) is a type of business structure that has been incorporated as a legal entity and registered with Companies House.

It ends with the suffix "limited" or "ltd", because the owners of the company are protected by ‘limited liability’, or in other words, they are only responsible for business debts up to the value of their investments or what they guarantee to the company.

It's important to understand, that an LTD company is a completely separate business entity from its owners, unlike the self-employed (physical entity), where the owner and the business is one and the same "thing".

A limited company can be registered as 'limited by share' or 'limited by guarantee'. In first case, the company is owned by one or more shareholders and managed by one or more directors. In second version, the company is owned by one or more guarantors and managed by one or more directors. In any case, one person can be both a director and owner.

Another interesting part, is that there are two kinds of limited company: Private Limited Companies and Public Limited Companies.

In this article, we will mention briefly the:

1 Company limited by shares 2 Company limited by guarantee

3 Private & Public limited company

4 Liability of shareholders, guarantors and LLP members 5 Taxation of a limited company 6 Company's Director responsibilities

1. COMPANY LIMITED BY SHARES

This kind of company is designed for those who areinterested in running a profit-making business and keep the surplus of income for themselves. It can be set up by anyone, either the owner or an agent. The privilege in this type of company is that a shareholder's responsibilities are up to invested capital. In other words, if a company can not pay its bills - obligations (ATTENTION: This rule does not apply to tax liabilities - any tax payable must be fully paid, and the responsible person for it is director) shareholders are required to pay only the nominal value of their shares. This is very popular kind of entity to run a business in UK.

Also interesting:

- Can be formed electronically in few minutes

- Initial capital can be even £1

- Losses of trading can be forwarded to the following year

- Can be managed entirely from abroad

- You can use your accountant address as the company register address

2. COMPANY LIMITED BY GUARANTEE

This type of company is used by people who primarily want to create a non-profit or charitable organization. When this type of company makes profit, the owners usually reinvest the earned funds. Despite its status, this type of company also can distribute profits to its members, if allowed by its articles of association, but in this case, the company will not be eligible for charitable status.

Commonly used for:

- Clubs - Membership organisations - Residential property management companies - Sports associations - Workers' co-operatives - Charities - Students' unions

3. PRIVATE & PUBLIC LIMITED COMPANY

When a company is classified as Private, it means that this company can't offer shares to the general public, usually through the Stock Exchange. Also, it's disclosure requirements are relatively light, comparing with the Public type. These are the major differences between a Private and a Public limited company.

Very important part of the Public Company, is that there is a minimum share capital requirements and is £50,000. Also this type of company must use the prefix PLC after its name.

Although for a private company almost everything is simple, there are additional requirements for the public company (PLC) and some of them are:

- 2 Directors minimum

- Qualified Company Secretary

- Shorter filing period for accounts after end of financial year

- Need to hold an annual general meeting (AGM)

- The SH50 form must be completed and sent to the Companies House to receive a Trade Certificate prior to any trade. This will prove that at least 25% of the shares were paid.

4. LIABILITY of SHAREHOLDERS, GUARANTORS & LLP MEMBERS

SHAREHOLDERS The amount paid or payable for each share is the limit of liability of each shareholder.

GUARANTORSThe guarantor must agree to pay a fixed amount of money on the company's debts, if and when required. It can be even £1.

LLP MEMBERSMembers are only responsible for what they have invested in the partnership.

5. TAXATION OF LIMITED COMPANY

One of the main reasons why someone creates a limited company, is because of its tax efficiency. A limited company pays in tax only a flat rate of 19% from its net profit. Moreover, best tax treatment can be achieved by leaving the surplus income in the business bank account and withdrawing it in the next tax year as a salary or dividends. Also, speaking about dividends, business owners can use this way of withdrawing in order to minimize the personal tax and National Insurance Contributions (NIC).

Speaking about numbers - Useful links:

- Corporation Tax - Tax on dividends - National Insurance rates and categories - VAT registration thresholds

Another important thing that must be distinguished, is the difference between Corporation Tax & Income Tax.The first one has to do only with a company, where the second one, with a person (e.g. Self Employed). The main advantage of a limited company is that the company has a fixed rate. The tax rate for a self employed depends on the person's income amount. Click here to find out the tax rates for individuals.

6. COMPANY's DIRECTOR RESPONSIBILITIES

➤ Follow the company’s rules, shown in its articles of association. ➤ Keep company records and report changes. ➤ File your accounts and your Company Tax Return. ➤ Tell other shareholders if you might personally benefit from a transaction the company makes. ➤ Pay Corporation Tax. ➤ Register for Self Assessment and send a personal Self Assessment tax return every year.

ATTENTION: No matter if the Director has appointed an accountant to fulfill the statutory obligations of the company - The directors(s) remains solely responsible for the information provided, as well as for submission of them in time.

For more and detailed information about a Limited Company, please visit COV.UK.

© 2017 UPECO LTD

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Attention! This article intends to give only a general informative picture and should not, in any case, be taken as a rule. It is strongly recommended to seek a full and professional guidance specifically for your circumstances before making any decisions.

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