What is a UK Limited Company? The Ultimate Guide to Understanding a Limited Company
A limited company is a business structure you register with Companies House as a legally distinct body. If you want to run your business as a limited company, you must know it will be legally distinct from your personal assets and finances. Since the company will legally be an individual, it will own separate assets and finances from you and be responsible for its actions, liabilities, and finances.
Incorporating a limited company in the UK is seamless. You register it with Companies House in a registration process called incorporation. You can register this company online or through post, and you can do it yourself or with the help of an assistant. This guide will unfold the requirements of incorporating a limited company, types, and benefits.
Why Incorporate a Private Company in the UK?
The primary advantage of registering a limited company is that it allows you to benefit from the business profit without personal liability. Limited company financial liability to owners or shareholders extends to the amount of their shares. This means they are supposed to cover the company's debts up to the value they invested or agreed to pay if a business faces financial difficulty. This protection is called limited liability.
Another role of a limited company is to disclose its corporate and financial details. You do this by ensuring you adhere to annual filing requirements and other event-driven obligations, such as:
- Submitting confirmation statements
- Filing annual accounts and tax returns
- Reporting changes in the company
This information is recorded on public records. Fortunately, you can incorporate a company of any size as a limited company and take advantage of many financial benefits.
Registering a limited company
You register your Limited company with Companies House with these details
- Your company name and address
- Name of directors and their addresses
- Shareholders and capital information
After submitting the information, the Companies House will verify the documents. It will then incorporate your business and issue the Certificate of Incorporation with these details:
- Name and company registered number
- Incorporation date
- Company Type
- Company registered office, e.g., England, Wales, etc.
There are different types of limited companies; let's check them and their benefits
Types of Limited Companies
Here are the types of limited companies
Private Limited by Shares
Private limited by shares is the most used limited company structure by owners who want to profit. This company is owned by one, two, or more shareholders, and is managed by one or multiple directors. You can be the sole shareholder or have more people who are directors or shareholders of the company.
A company limited by shares is supposed to allot a portion of the company as shares. A shareholder must buy one or more of the issued shares. The value of shares determines how much a shareholder owns the company and how much money they must invest. However, if a company gets into debt, it cannot pay. Every shareholder must pay the value of the unpaid shares to the company's financial liabilities. So, the value of your shares determines your personal financial liability limit.
Benefits and Features of a Private Limited by Shares Company
- One or more people can own it
- The personal liability of members is limited to the amount of shares
- The limited status appeals to investors and lenders
- The company may raise capital by selling shares
- Shareholders can use profits for their use
- It is tax efficient for a business making profits
Legal Requirements
- It incorporated with Companies House
- Must have one director and one shareholder of 16 years and above. One person can play both roles.
- The registered office must be in the incorporation country
- Company information is placed on the public record
- The adoption of articles of association is essential to establish and articulate the operational rules and regulations governing the company
- As the director, you're responsible for annually delivering the statutory reports to HMRC and Companies House and notifying Companies House of any changes in company information.
- The surplus income is taken out of the company as salary, dividends, reimbursement of expenses, or loan.
Private Limited by Guarantee
You will open this type of company if you plan to run a non-profit company. There are two types of private limited by guarantee companies.
- Non-profit companies such as workers' co-operatives, sports clubs, society, etc.
- Charitable company - this company uses its profit for charity.
This company, in most cases, doesn't distribute its profit to its members but uses its income to reinvest in the company
Who can Own a Company Limited by Guarantee?
This company is owned by one or multiple guarantors. One director must be appointed to manage the company on behalf of other guarantors. But a sole guarantor can be the company's director. This means you can incorporate the company limited by guarantee as one person.
Since this type doesn't issue shares, every guarantor must back the company financially in a guarantee form. In case the company gets into debt, every guarantor must contribute an amount stated in their guarantee. The guarantee is the limit of their financial liability.
Benefits and Features of a Company Limited by Guarantee
- The company has guarantees and guarantors instead of shares and shareholders
- Guarantors' personal finances are protected by limited liability since they are responsible for the value of their guarantee and not the entire debt
- Since the company has limited status, it attracts investors, suppliers, and clients because of its transparency
- The company is flexible to registering for charity purposes, and profits can be shared among members
Legal Requirements
- Are incorporated with the Companies House
- You can take the One guarantor, one director position
- The registered office must be in the country of incorporation
- Company information is disclosed on public record
- There must be a memorandum of association
Limited Liability Partnership
This type of company is the same as a business partnership, but has a limited liability advantage. In a traditional partnership, partners have unlimited financial liability for debts, meaning partners' personal finances are at risk if the business accrues debt. In a limited liability partnership, partners agree to pay a fixed amount if a company gets into debt, meaning they set a limit on their financial liability. The company has these features.
- It is taxed as a partnership, so there is no corporation tax liability
- It can have unlimited partners
- It must comply with the Limited Liability Act 2000 and not the Companies Act 2006.
The LLP is gaining popularity due to traditional partnership and limited liability company features. They are primarily used in sectors where the partnership is common, for example, solicitors, doctors, etc.
Features and Benefits of LLP
- Profits are shared between partners.
- LLP members are taxed their share of profits instead of the company paying corporation tax
- This partnership can have other companies as members, but in this scenario, profits become corporation tax, not income tax.
- Members don't need to live in the UK
- The partners decide the structure of the business
- The duties and responsibilities of partners are equal, but you can adopt a flexible partnership structure that may change profit distribution and members' rights vary.
LLP Legal Requirements
- You incorporate it through Companies House
- Must have two or more members (no maximum)
- Two designated partners must be responsible for filing and reporting duties for the LLP.
- The registered office must be in the UK incorporation country
- Inform HMRC of the LLP existence and file the partnership tax return annually
Winding up
A UK Limited Company offers distinct legal protection for personal assets. There are various types of limited companies, such as private limited by shares, private limited by guarantee, and limited liability partnership, each catering to different business needs. Registering with Companies House involves detailing company information and adhering to legal requirements. Limited liability, flexibility, and tax advantages make these structures appealing to entrepreneurs. Need help forming a Limited Company in the UK? if yes, kindly contact us today.