What is a limited company? 

What is a limited company? 

A limited company is one of the four main legal structures for business ownership and, due to the limited liability for shareholders, is also one of the safest business structures.

A limited company is a separate legal entity, and the shareholder’s liability is limited to what they put into the company. Therefore, if the company goes into bankruptcy, the owners will not have any personal assets seized to cover debts.

The types of limited company

There are three main types of limited companies in the UK: 

  • Private limited company by shares (LTD)

A private limited company’s ownership is divided into shares and can have just one (owner) or many shareholders. Liability is limited to the number of shares paid into the business.

  • Public limited company (PLC)

Like a LTD, a public limited company’s ownership is divided into shares, and the shareholder’s liability is limited to the amount of shares they have paid into the business. By law, PLCs should be registered on the stock exchange, making investment opportunities public.

  • Limited private partnership (LLP)

A limited private partnership combines a limited company and a partnership for business enthusiasts who want the best of both benefits of a partnership and a limited company. LLP does not have shares or shareholders, and owners are only liable for their amount invested into the LLP.

Things to consider when setting up a limited company 

Tax benefits 

Limited companies can benefit from tax benefits. Currently, limited UK companies only pay 19% corporation tax on profits and do not pay income tax and National Insurance.

Withdrawing money 

Limited companies are separate entities meaning that any earned money belongs to the company, and the shareholder cannot withdraw it from the company bank account. Instead, shareholders will need to take a salary or declare a dividend.

Setting up a limited company may require appointing an accountant to help with tax and finance.

The company name is protected.

Company shareholders must incorporate limited companies with Companies House in the UK, which gives businesses name protection as no two businesses can legally have the same name. However, name choices are subject to certain restrictions.

Companies House

There are a few points to consider being incorporated with Companies house. For instance,

  • Limited companies are required to pay an incorporation fee to Companies House.
  • The record-keeping requirements are very specific, and shareholders must inform Companies House of any changes to the shareholders, addresses and shares made to a company.
  • Company information such as registers and records, including details of shareholders and directors, must be submitted to Companies House and HMRC, which the public can view.

 

If you’d like to discuss setting up a limited company, please get in touch.