A limited company is a company that is formed for the purpose of operating a business as per the wishes of the company director(s). One of the reasons for forming such a company is to limit the personal liability of the officer(s). Most people that form a limited company act as directors, and as such, are responsible for the day to day management of the company.
The directors appoint shareholders (directors can also be shareholders of the same company) who each hold a specific percentage share of the company, and are effectively the owner(s) of the business. The company directors are considered employees who are managing the business on behalf of the shareholders.
A limited company has liabilities, assets, losses, and profits, but the liabilities do not pass through to the directors who are protected from the company’s financial liability should they ever run in to financial difficulties.
Who can set up a Limited Company?
Any individual of any nationality may register a limited company subject to a few conditions:
- They have not been restrained by court order
- They are not subject to UK government restrictions.
- They are not an undischarged bankrupt
Note: You may run into some challenges opening a UK corporate bank account if you are not a national of the United Kingdom and/or live outside the UK.
What are the advantages of trading as a Limited Company?
The main advantage is that directors are protected in the event the company encounters financial problems in as much as their liability is limited. In short this means that director’s personal assets are protected.
A limited company instills confidence in creditors, suppliers, and banks, and as a result, many larger corporations will only conduct business with limited companies. So if you want to do business with big companies, and obtain trading accounts with certain suppliers, you will probably find it easier being a limited company as opposed to a sole trader or partnership.
Likewise when you need to obtain a bank loan, you may well find it easier with a limited company.
Forming a limited company affords you the opportunity to do business in the most tax efficient way versus being a sole trader or partnership.
The ownership of a limited company can easily be divided up through the sale of shares. The shares can be further used as a means of generating investment capital. Also, in the event of a partner leaving, it is easier to continue the business.
Your exit strategy will be easier with a limited company. You will find the process of selling your company smoother because people can look up your company information on websites like Duedil, see how long you have been registered for, find out who the company directors are, and check out your company accounts. The public perception of a limited company is that much greater than of a sole trader or partnership.
What information do I need to set up a limited company?
- A unique name for your company
- A registered office address
- A minimum of one director willing to accept the responsibilities that come with the appointment
- Basic personal director details such as name, title, date of birth, and nationality
- The total number of shares and shareholders
What is a Registered Office?
The registered office is the official address where all statutory documents from Companies House will be mailed.
This address will appear on the public records such as those found at Companies House. A PO Box can be used provided the full address is given, including the postcode, and it is validated by the Royal Mail.
What kind of company accounts and records must I maintain?
Limited companies are required by law to keep a full record of income, expenditure, assets and liabilities. The records must be kept in a safe place as it will greatly assist your accountant when filing your company’s annual accounts.
Do I have to charge VAT, and if so, when?
You are not required to charge VAT on any of the goods or services you provide until you have reached the VAT threshold amount of £73,000 (As of 1st April 2011).
If you expect to reach £70,000 within 30 days, then you must register for VAT right away. Once you have exceeded the threshold it is mandatory that you immediately register for VAT, and start charging tax on the goods and/or services you provide from the day you registered.
Does the fact that I have registered as a Limited Company mean my trademark is protected?
Absolutely not. Company law is much different than trademark law, and you cannot stop someone from using a trademark that is similar to yours, just by simply registering your business name with Companies House.
You should seek guidance on this matter from the UK Intellectual Property Office.
Do I need a company secretary?
It is no longer a requirement for a limited company to have a company secretary since changes to the Companies Act 2006 came into effect on April 6th, 2008. A limited company can operate with just a single director.
Do I have to trade immediately?
No. Your company can remain inactive (dormant/non trading) for as long as you like, however you must file dormant account forms with Companies House along with an annual return form (Form AA02).
Do I need to submit any company documents annually?
Yes, you must provide a number of documents following your ‘Accounting Reference Date’ (ARD). This date is usually the last day of the month your company was incorporated and occurs each year thereafter on that same date.
This is the date your financial year ends (which can be changed) and the date that your accounts are made up to.
You have 10 months from your ARD to file the following documents to Companies House:
- A profit and loss statement
- A balance sheet signed by a director
- An auditor’s report signed by the auditor (if appropriate)
- A directors report signed by a director or the secretary of the company
- Notes to the accounts
*NB: This blog post contains some of the more common frequently asked questions regarding Limited Companies, and is not intended to be a fully comprehensive list and source of company law and information. Readers are advised to seek independent professional advice before acting on anything contained herein.