Many business owners set up a limited company without knowing ‘what is a limited company?’ This business structure is legally separate from its owners or is a separate legal entity. It needs to be registered at Companies House in the UK. A limited company is solely responsible for its finances, actions and liabilities. Let’s delve deep into the details.
What is a Limited Company?
A limited company is a business structure that:
- is legally different from the owners (shareholders) and managers (directors) of the business
- keeps the finances of the business separate from the personal/private finances of the owner
- is able to own assets and takes the profit it makes after deducting taxes
If the company is sued or become insolvent, the directors and shareholders don’t need to sell their personal assets to pay the debt unless they are directly involved in any wrongdoings. The separation also means that the shareholders and directors can’t withdraw money as per their wishes. Moreover, the earnings of the company received through sales are owned by the company, not to the individuals.
A limited company needs to file annual accounts and confirmation statements with Companies House that are available for public viewing. In addition, a limited company needs to file a corporation tax return to HMRC on annual basis.
Types of a Limited Company
Generally, there are two main types of limited companies:
Private Limited Company
It is a company where shares cannot be offered to the general public. Many small businesses in the UK prefer to set up their company as a private limited company.
Public Limited Company
Unlike a private limited company, this company provide shares to the general public to raise capital. Its shares are traded through the stock exchange. A PLC needs to issue shares up to £50,000 before starting its business operations. This structure is best for large and established companies.
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How to Set Up a Limited Company?
For setting up a limited company, you first need to register it with Companies House. There are two ways to register your limited company. The first is by registering online and the second is registering via post.
The following information is needed to register your limited company:
- Registered business name and address of your company
- The details of your directors and company secretary (if applicable)
- Information of shareholders and capital
For completing the incorporation process, you need to complete the following document and return it to Companies House:
- Memorandum of Association
- Form 10
- Form 12
- Articles of Association
What are the Taxes you Need to pay as a Limited Company?
After completing the incorporation process, you need to register your company for corporation tax. Bear in mind that you need to register for corporation tax within the time limit of 3 months, otherwise you’d be levied a penalty. Along with corporation tax, you also need to pay other taxes like:
- Capital Gains Tax (CGT)
- Value-added tax (VAT)
- National Insurance Contribution
Quick Sum Up
In this post, we have briefly discussed what is a limited company, what are the types of a limited company, how to set up one and what taxes a limited company needs to pay in the UK. Setting up a limited company is a straightforward process. You just need to pay around £30 to an agent to form a limited company but fulfilling the responsibilities of a limited company is a daunting task. Therefore, you need to be prepared beforehand to meet all the requirements and responsibilities of a limited company before establishing one.
Disclaimer: This blog is written for general information on the limited company.