This discussion is for basic informational purpose only. No responsibility is taken and we urge you to seek professional advice before you attempt to set up a Limited Company.
The majority of small business start as a sole trader, and some continue using the status indefinitely. After that the next most popular is the limited company. It is more complicated and is considered an individual legal entity in its own right. It has its own liabilities, profits, and losses. With a sole trader, everything belongs to the owner of that business. Because a limited company owns the assets, profits, losses and liabilities, everything must be recorded meticulously, managed adequately, and accounted for.
Private Limited Company (LTD)
Is the most typical for small business in the UK. It can have a number of shareholders, but those shares can't be owned by the general public. The company must possess a minimum of one director and one secretary.
Public Limited Company (PLC)
Must have authorized share capital of am minimum or £50,000. The allotted shares must be to the value of a minimum of £50,000 before the business can begin trading. Other stipulations are in place on the amount of paid up share capital for PLC's. It can offer shares to the public to raise revenue. There has to be a minimum of 2 directors and one properly qualified company secretary.
Community Interest Company (CIC)
This is a Private Limited Company or Public Limited Company set up to operate for community service. An organization needs to undergo the 'community interest test' and 'asset lock'. This validates it is set up for the community and the assets and profits are dedicated to the community. For more information go to CICRegulator
Advantages of trading a Limited Company
NB. You MUST take professional advice by using a qualified accountant. Taxes are a serious matter and should never be taken lightly. Large sums of money can be involved and lenience is not usually taken on money owed to the HMRC. Interest rates are applied to any overdue amount on a daily basis, so pay any owing by the due date.
- The word limited stands for limited Liability. Owners of the company (shareholders) have protection in the event of company failure. They only pay what is agreed or what they have already paid toward settling company debts. In other words, personal assets and possessions can't be seized.
- Being limited instills confidence in the suppliers. Some large organizations will only deal with limited companies.
- Finance could be easier to raise. Either by financial institutions or share sales.
- Ownership is easily divided up with shares sale.
- Possible tax advantages. Sole trader are charged personal tax as being self employed. They are charged personal tax. Limited companies pay corporation tax only on profits. This tax is currently lower than personal income tax.
Administration is the main disadvantage of being a limited company. This requires you to:
Setting up your company
- Maintain a complete record of income, expenditure, and liabilities. Records need to be secure to be used for the duty of returning the company's annual accounts. Keep all detailed records for a minimum period of seven (7) full tax years.
- Pay income tax, and national insurance contributions for all employees. Even as a Director getting a salary, you are classed as an employee of the company.
- Get the annual account filed at Companies House for the public to review. You must include the profit and loss account, a balance sheet and an auditor's report if turnover is in excess of £5.6 million, or the balance sheet totals more than £2.8 million. The auditor must be qualified.
- Complete the corporation tax return annually, and pay any tax and national Insurance due within 9 months of the company year end, each year.
Provided they are not an undischarged bankrupt, restrained by a court order, or subject to UK government restrictions, any individual, of any nationality may register a limited company.
All Limited companies need to be registered at Company House.
Here's what you need to register:
- A company name. Providing it isn't previously registered and complies with guidelines of not being misleading or offensive.
- A minimum of one individual to act as director.
- A minimum of one individual to act as secretary
- A Minimum of one willing shareholder. Only required to purchase one share at £1. (May be the company director or secretary)
- An office address that has been registered. This official address is where all statutory documents form Companies House will be delivered. It must be a full UK postal address and will appear on public records. PO boxes are not allowable.
The company can be registered directly with Companies House, but online companies like Quick Formations
are much quicker. By providing standardised documents that are sufficient for most uses, these online companies alleviate much of the administration from the previous way of registering your business.
The certificate of Incorporation
The official document issued by the registrar once registration is successful. It states the name and number of the company and the date of the incorporation.
The Memoration of Association
This defines what the company will do, the name and registered office address. It also contains statements referring to the limited liability, share price and authorized share capital.
The Articles of Association
Defines how the company will be run by the shareholders and officers. Most limited companies adopt the legal table commonly known as 'Table A'.
Registering for VAT
Any company limited or not must register for VAT as soon as its turnover exceeds the threshold. Currently the threshold is £60k in any 12-month period. You have 30 days to register once this happens. Online registration is available at register for VAT online
. If you supply services or goods at zero-rated, you'll still need to register and apply for an exemption.
All About Shares
- Provide a means of capital investment into the company.
- Determine who has overriding control of the operation. An over 50% share has full control of the company.
Any number of shares can be created and you do not have to assign then all. Usually 1000 shares are created (authorized share capital) with a £1 nominal value. Shares are then assigned to the shareholders, (known as assigned or issued shares). Please note that if you create 1000 shares and only issue one of them, that shareholder becomes 100% shareholder for that business.