It is a company owned by shareholders, in which their liability is limited to the value of the shares taken in the company. Therefore, the shareholders personal assets are protected in the event of the business failing.
This type of company is good for individuals or a group of people and/or companies who want to trade without the risk of personal liability should the business run into trouble. It is also a good company structure for those wishing to add credibility to their business, raise additional capital or take advantage of more favourable tax benefits.
It is a legal requirement of company formation to have at least one shareholder and one director. Both roles can be filled by the same person – which essentially means you can register a company on your own – but there is no limit to the number of shareholders and directors a company has during or after incorporation.
It is owned by shareholders. Limited by guarantee companies are owned by guarantors, and limited liability partnerships are owned by 'partners'.
The corporation tax payable on limited company profits is lower than the higher rates of income tax payable by sole trader and partnerships. In addition, although directors are paid a salary that is subject to income tax and NI payments, a limited by shares company director can utilise their personal tax-free allowance to avoid any income tax deduction. Limited companies can also voluntarily register for VAT, offering cashflow benefits by allowing companies to charge VAT on sales and claim it back on purchases.
By setting up a limited company, the members can protect their personal assets from being used to pay any company debts. On the other hand, a sole trader is personally liable for any debts the company may owe, because there is no distinction between company money and personal money.
A Confirmation Statement and annual accounts must be submitted to Companies House every year. The Confirmation Statement is a snapshot of a company’s current details at the date at which the confirmation statement is made up to; annual accounts contain information about a company’s financial activity. Companies must also prepare Company Tax Returns and annual accounts for HMRC every year, and pay any business taxes they may owe.
All limited companies must be registered with the Registrar of Companies in the UK (Companies House). There is also a requirement to have a registered office address. This must be a physical address and not a PO Box. Details of the registered office are made available to the public. A memorandum and articles of association must also be included with each registration application, and company details should be maintained and any changes must be reported to the relevant authority.