What comes to your mind when you come across the word “Limited Company”? Even though its general meaning is “finite” or “insufficient”, it can have a whole opposite meaning on other occasions. For instance, a “limited” edition can mean that a particular product is exclusive, has special features, and is more valuable.
Making things rare often enhances its value. For example, hearing “limited” rooms available or “limited” seats available while booking hotels or flights can make it more desirable. Let’s find out what is a limited company UK.
What is a limited liability company in the UK?
However, the most important one is the one that comes after the name of a company or business. Limited liability implies that the company is not personally liable for any financial losses. Hence, it is an entity in its own right. In other words, having a “limited liability” is a form of business. It is legally separate from its shareholders, directors, and managers.
In law, a limited company is entirely separate from the owners. It also means even if only one person is the lone director and the sole shareholder of the company. It will still separate from that person and regarded as a distinct legal entity.
A limited company in the UK has to be incorporated in the Companies House in the UK. And must have a unique company registration number. The company has to comply with the UK Companies Act 2006. Companies House holds information about limited companies in the UK on a public register, which anyone can see.
How to set up a limited company UK?
Therefore, if you want to set up a limited company UK, the first two most important things to do are to register it with Companies House. And then inform HMRC after your company starts your business activities.
Now, there are a number of things to do before you can formally register your limited company UK on the Companies House. The first is to settle on the name of your company and the official registered address. Next is to assemble the company director search, initial shareholders, share capital, and a SIC code.
After that, you need to file the agreement documents such as Articles of Association and Special Memorandum to the Companies House. These documents will state the rules based on which your company directors. It will govern and run the company for the benefit of its shareholders. The Mems and Arts you decide for your limited company UK must be in accordance with the UK Companies Act 2006.
What types of limited company UK are there?
There are three main types of limited companies in the UK. Namely, public limited company, a private limited company (by shares), and private limited company UK (by guarantee).
Public limited company: A public limited company UK can offer shares to the general public and raise capital. Hence, public limited companies are listed on a recognized UK stock exchange and publicly trade stocks. These companies are usually strictly regulated.
They need to publish periodic reports on their financial status to the shareholders. There is a higher level of transparency maintained in accounting in public limited companies. They also held annual meetings with all shareholders and prospective shareholders.
What is a private limited company in the UK? A private limited company UK can be divided into two categories.
Private limited (by shares) company: It is the most common type of limited company found in the UK. In a private limited company UK, the owners have limited liability. It means that the responsibility of the shareholders or the business owners is limited. It will be limited to the nominal value of shares owned by them. It is not traded on a public stock exchange.
In the case of company insolvency, the personal assets of the company’s shareholders will be protected. In case, if it is a private company limited by shares.
Private limited (by guarantee) company: What is a company limited by guarantee UK? Well, a private company limited by guarantee does not have any shareholders or share capital. Instead, it is controlled by members.
These are most often non-profit organizations that are run by a group of guarantors who vote and pay money towards the company’s liabilities. The profit gained by a private company limited by guarantee may be divided between the members.
What are the advantages of a limited company in the UK?
There are several advantages to setting up a limited company UK. In fact, in the UK, setting up a limited company is the most popular way of starting a business. For an aspiring entrepreneur, it is important to identify the range of benefits there is to it. These are discussed in detail below:
Tax efficiency: Compared to a sole trader, limited companies are much more tax efficient. It is one of the reasons why it is the most common form of business in the UK.
Limited liability: Unlike sole traders that have full liability and responsibility for all the business. A limited company in the UK offers limited liability to its owners. It means the finances and personal assets of the owners will be legally protected from the company’s debts.
Distinct entity: A limited company is a separate entity – which means that the company’s owners or directors will have no attachment whatsoever to the company’s actions (besides their shares).
Professional status: Unlike sole traders, limited companies are officially registered on the Companies House UK. Registering your limited company means you own the right to the name of your company. And your trademark and no other business entity can use that. Due to this reason, limited companies are seen as more secure businesses. And so it is easier to get loans from banks and funding from investors. Limited companies with individual entities like that can be easily searched online. As a result, they are more likely to attract clients.
In a nutshell, being a limited company means even if your business fails, your personal assets will not be at risk, there is more credibility to your business and hence, it is easier to get investors, suppliers, and customers. As a limited company, you get to pay less tax compared to a sole trader. You are registered with the UK Companies House and thus, your company name will be protected legally.