A limited company is an organisation that you can set up to run your business. It is responsible in its own right for everything it does and its finances are separate to your personal finances.
As a limited company:
- it will have members. These are people or organisations who own shares in the company.
- any profit is owned by the company.
- after it pays Corporation Tax the company can then share its profits.
- Directors are responsible for running the company. Directors often own shares, but this is not necessary.
- Directors or shareholders are liable for all debts if things go wrong.
Types of company
- Limited by shares - Most limited companies are ‘limited by shares’. This means the shareholders’ financial liabilities are limited to the value of shares that they own but haven’t paid for. Company directors are not personally responsible for any business debts if things go wrong, provided they haven’t broken the law.
- For example. a company limited by shares issues 100 shares valued at £1 each when it’s set up. Its 2 shareholders own 50 shares each and have both paid in full for 25 of these. If the company goes bust, the maximum the shareholders have to pay towards its outstanding bills is £50 - the value of the remaining 25 shares that they’ve each not paid for.
- Private company limited by guarantee - Directors or shareholders financially back the organisation up to a specific amount if things go wrong.
- Public limited company - The company’s shares are traded publicly on a market, such as the London Stock Exchange.
Every financial year, the company must:
- put together statutory accounts.
- send Companies House an annual return.
- send HMRC a Company Tax Return.
- the company must register for VAT if you expect its takings to be more than £82,000 a year.
If you’re a director of a limited company, you must:
- fill in a Self Assessment tax return every year.
- pay tax and National Insurance through the PAYE system if the company pays you a salary.
Registering your company
You must register the company with Companies House and let HM Revenue and Customs (HMRC) know when the company starts business activities.
You will need:
- a company name - there are rules on what it can and can’t include.
- an address for the company.
- at least one director.
- at least one shareholder.
- the agreement of all initial shareholders (‘subscribers’) to create the company - known as a ‘memorandum of association’.
- details of the company’s shares and the rights attached to them - known as a ‘statement of capital’.
- written rules about how the company is run - known as ‘articles of association’.
Once the company is registered you’ll get a ‘Certificate of Incorporation’. This confirms the company legally exists and shows the company number and date of formation.
Below is a video regarding registering your business as a limited company.
Growth Hub providers – help on setting up a limited company
Gov.uk - register for VAT
Gov.uk – details on how to set up your limited company.