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A limited company is a legal business structure that is registered with Companies House - the Registrar of Companies in the United Kingdom - through the process of incorporation. When a company is formed through Companies House, it becomes an individual in the eyes of the law. As such, a limited company is a completely separate individual from its owners, because it is responsible for its own actions, finances and liabilities.
Limited companies have the unique advantage of allowing business owners to benefit from company profits without personal liability. The financial liability of company owners is limited to the value of their shares or financial guarantees, which means they are only required to cover business debts up to the amount they invest or agree to pay if the company runs into financial difficulty. This type of protection is known as limited liability.
One of the most important obligations of a limited company is the disclosure of corporate and financial information. This is achieved by adhering to a number of annual filing requirements and event-driven obligations, including: the submission of confirmation statements, filing tax returns and annual accounts and reporting any significant changes in the business. All of this information is placed on public record.
Any type and size of business can operate as a limited company, and there are many financial and professional benefits to be gained - limited personal liability, tax-saving opportunities, enhanced professional status and investment opportunities are the main advantages of limited company formation.
This is the most common type of limited company structure for any type of business that wishes to make a profit for its owners. A private company limited by shares is owned by one or more ‘shareholders’, and managed by one or more ‘directors’. One person can be the sole shareholder and director of a company, or multiple people can be shareholders and/or directors of a company. This means you can set up a company limited by shares on your own.
Companies limited by shares are required to issue portions of the business as ‘shares’. Each shareholder must agree to buy one or more of these issued shares. This determines how much of the company each shareholder owns and the amount of money they are legally required to invest. If the company accrues debts that it cannot afford to pay, the shareholders must contribute the value of their unpaid shares toward the financial liabilities of the business; therefore, the number and value of each shareholder’s shares determines the limit of their personal financial liability.
Limited companies must pay corporation tax on all taxable income. Post-tax profits are then issued to shareholders in relation to the number and value of their shares. Alternatively, the company may choose to reinvest surplus income in the business.
You should register a company limited by guarantee if you are planning to run a non-profit organisation. This type of business generally falls into one of two categories:
In most cases, a company limited by guarantee will not distribute any profit to its members (guarantors) - surplus income will be reinvested in the business, instead.
A company limited by guarantee is owned by one or more ‘guarantors’. A minimum of one director must be appointed to manage the company on behalf of the guarantors; however, it is also possible for one person to be the sole guarantor and director of a company. This means you can incorporate a company limited by guarantee on your own.
Each guarantor is required to financially back the business in the form of a ‘guarantee’ - no shares are issued in this type of company. If the company accrues any debts, each guarantor is legally required to contribute the sum stated in their guarantee. This is the limit of their personal financial liability.
Quality Formations will complete your full limited by guarantee company formation online, including the supply of standard memorandum and articles of association. You can download these documents and easily edit them to reflect your non-profit organisation goals.
A limited liability partnership is more or less the same as a normal business partnership, but it has the added benefit of limited liability - the partners in a traditional partnership have unlimited financial responsibility for business debts, which means their personal finances are at risk if the partnership runs into difficulty or becomes insolvent. LLP partners guarantee to each pay a fixed sum of money toward business debts if the LLP cannot pay its bills. These guarantees set the limit of their personal financial liability.
LLPs are increasing in popularity because they combine the practicality of a limited liability company and the flexibility of a traditional partnership. They are popular in sectors where partnerships are prominent - doctors, architects and solicitors, for example.
If you are not dividing profits, rights, and responsibilities equally between all partners, you can draft an LLP Agreement or Partnership Statement to outline the terms of the partnership. Although this is not a legal requirement, we do recommend one to promote clarity and prevent disputes.
Quality Formations’ LLP formation package comes with a free LLP Agreement for those who need it.
A public limited company trades on the open stock market (London Stock Exchange, for example) and sells shares to the general public. This type of limited company structure must have an issued share capital of at least £50,000; therefore, PLCs are generally reserved for larger, established corporations.
PLCs must have a minimum of one shareholder, two directors, and one qualified company secretary.