July 12, 2023
A limited company is a type of business structure where the company has its own legal identity, separate from its owners (shareholders) and its managers (directors). In the UK, there are two types of limited companies: private limited companies (Ltd) and public limited companies (PLC).
In a limited company, shareholders' liability is limited to the capital they originally invested. If the company incurs debts, the shareholders are not personally responsible for covering them unless they have provided personal guarantees. This is one of the key benefits of the limited company structure, and it differs significantly from other business types such as sole traders or partnerships where the owners are personally liable for all business debts.
Limited Liability: As mentioned above, if the company runs into financial trouble, the personal assets of the shareholders are not at risk. This protection can make a limited company a less risky venture than other business types.
Tax Efficiency: Limited companies often have access to more tax-deductible costs and allowances than other business forms. For instance, the corporation tax (the tax a company pays on its profits) is typically lower than the income tax rates that sole traders or partners pay on their profits.
Professional Status: A limited company often appears more professional than a sole trader or partnership. Some businesses will only deal with limited companies because they prefer the accountability and security they offer.
Growth and Investment: It's often easier for limited companies to raise finance through selling shares, and lenders may be more inclined to offer finance to limited companies. Also, limited companies can retain profits after tax to reinvest in the business or to fund future growth.
Ownership and Succession: Shares in a limited company can be sold or transferred, making it easier to bring in new owners or for existing owners to leave or retire. It's also simpler to divide ownership of the company, as it can be based on the number of shares owned.
Brand Protection: When a company is registered with Companies House, its name is protected and no one else can use the same name.
Despite these advantages, it's also worth noting that limited companies have more regulatory requirements than sole traders or partnerships. For instance, limited companies must file annual accounts and reports with Companies House, and details about the company, including its profits, are publicly accessible. Directors also have legal responsibilities known as 'director's duties', and there may be penalties if these aren't fulfilled.
Choose a Name: You'll need a unique name for your company. The name can't be the same as another registered company’s name. If it's too similar, it may be rejected. You can check the Companies House register to ensure your chosen name isn't already taken. Also, bear in mind that certain words are sensitive and need approval to use.
Address: Your company needs to have a registered office address in the UK. This address will be publicly available on the online register.
Directors: You need at least one director. Directors are legally responsible for running the company and ensuring company accounts and reports are properly prepared.
Shareholders and Share Capital: You need at least one shareholder, who can be a director. You must also define the share structure of the company – the number of shares of each type the company has and their total value, which is its share capital.
Memorandum and Articles of Association: These are legal documents which outline the company's written rules (articles of association) and the agreement to create the company and the initial shareholdings (memorandum of association).
'People with significant control' (PSC): You need to identify who has significant control over your company, for instance, anyone with voting rights or more than 25% shares or ownership.
Standard Industry Classification (SIC) code: You need at least one SIC code, which identifies what your company does.
This guide can be found on GOV.UK and is a great way to check whether you are eligible or want to register a limited company. It takes you through every step of registering a limited company, including the steps above, allowing you to know exactly what you have done and need to do. Using this guide as a reference before and while registering will help you stay organised.
Once you have organised all of your information and are confident you are eligible to register your company, click here to get started registering.
Registering a limited company (LTD) is a process which requires a lot of information, planning and knowledge, meaning you need to be prepared when registering. This guide hopefully showed you not only how to register a limited company, but how to prepare.