When it comes to starting a new business, there are a lot of important decisions to make. One of the most important is deciding what type of company to form. There are several different types of companies, but one of the most popular is the limited company. In this blog post, we will discuss what a limited company is, how they work, and the advantages of forming a limited company.
Defining A Limited Company
There are many important things to know about limited companies and how they operate. So, what is a limited company – Uniwide Formations, business service experts, define it as “a form of business that is legally separate from its owners (shareholders) and managers”. A limited company is a type of business entity that is legally separate from its owners. This means that the owners are not liable for the debts and obligations of the company. Limited companies can be either private or public, but most businesses choose to form private limited companies.
What Are The Types Of Limited Companies?
There are two types of limited companies: private and public.
Private Limited Companies:
A private limited company is a type of business entity that is owned by one or more individuals, and the shares of the company are not publicly traded. This type of company is often used for small businesses.
Public Limited Companies:
A public limited company is a type of business entity that is owned by one or more individuals, and the shares of the company are publicly traded. This type of company is often used for large businesses.
There are a few key things that all limited companies have in common:
- They have limited liability, meaning that the owners are not liable for the debts of the company.
- They have a separate legal identity from their owners, meaning that they can enter into contracts and own property in their own name.
- They are required to file annual accounts with Companies House.
The Advantages Of Forming A Limited Company
Limited Liability
As we mentioned before, the owners of a limited company are not liable for the debts of the company. This means that they will not lose their personal assets if the business fails.
Tax Advantages
Limited companies often have lower tax rates than sole proprietorships and partnerships. They can also claim certain expenses as deductions, which can save them money at tax time.
Easier To Raise Capital
Because limited companies can sell shares, they often have an easier time raising capital than other types of businesses.
How To Set Up A Limited Company
If you’re thinking of setting up a limited company, there are a few things you need to do.
First, you need to choose a name for your company. The name must end with “Limited” or “Ltd.” and it must be available to use. You can check the availability of names by searching the Companies House website.
Once you’ve chosen a name, you need to register it with Companies House. To do this, you’ll need to submit a “memorandum and articles of association”. This is a document that outlines the rules and regulations of your company.
You also need to appoint directors and a company secretary. Directors are responsible for the day-to-day management of the company, and the company secretary is responsible for ensuring that the company complies with its legal obligations.
Finally, you need to open a bank account in the name of your company. This will allow you to keep your personal finances separate from your business finances.
Once you’ve completed all of these steps, you’ll be ready to start operating your limited company!
The Different Types Of Shares That Can Be Issued In A Limited Company
One of the advantages of forming a limited company is that it can help you raise capital. This is because you can sell shares in your company to investors.
There are two types of shares that can be issued in a limited company: ordinary shares and preference shares.
Ordinary Shares: Ordinary shares are the most common type of share. They give the shareholder the right to vote at shareholders’ meetings and to receive dividends.
Preference Shares: Preference shares are a type of share that gives the shareholder the right to receive dividends, but they do not have voting rights.
There are many different reasons why you might choose to issue preference shares, but one of the most common reasons is to give investors a greater degree of security. This is because preference shares are often paid dividends before ordinary shares.
When you’re deciding which type of share to issue, it’s important to consider the needs of your business and your investors.
What Tax Reliefs Are Available To Companies And Their Shareholders?
When you form a limited company, there are a number of tax reliefs that may be available to you.
One of the most common tax reliefs is the “corporate tax rate”. This is a lower rate of tax that applies to companies, as opposed to sole proprietorships and partnerships.
Another common tax relief is the “dividend allowance”. This allows shareholders to receive a certain amount of dividends before they are taxed.
How To Appoint Directors And Shareholders In A Limited Company
As we mentioned earlier, one of the things you need to do when you set up a limited company is to appoint directors.
Directors are responsible for the day-to-day management of the company and they have a legal obligation to act in the best interests of the company.
Shareholders, on the other hand, are the owners of the company. They have the right to vote at shareholders’ meetings and to receive dividends.
When you’re appointing directors and shareholders, it’s important to consider the needs of your business. You should appoint people who you trust and who have the skills and experience that your company needs.
So there you have it, the advantages of forming a limited company. It can be a great way to protect your personal assets and ensure that your business is run in the most tax-efficient way possible. If you’re thinking of starting your own business or are just curious about what a limited company is, we hope this article has been helpful!
