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What is a UK Limited Company

Many people in the UK may have heard of Limited or Ltd on various company names and essentially what a limited company is a business form that is specifically structured via Companies House to verify a legal individual.

This meaning that the limited company is in isolation from the owners and contracts can be put in to the name itself, given accountability of finances, motives and liabilities.

Within the company, the owners will be shielded through the limited liability state that means the owners will be required to run the business debts in order to stand to the investments made and also what is guaranteed to the limited company.

Furthermore a limited company is required to be programed and registered with Companies House which can be done online, this is a UK based register of companies to announce as limited by share / limited by guarantee.

Company limited by Shares

Company limited by shares are used by type of company structure and is specialised in enabling people to make profit within their business and at the same time maintain surplus income individually. Shareholders are entitled to subjective financial protection within limited liability.

Limited by Share companies are:

Owned by either one or above 2+ shareholders that will be managed by one or more directors.

In both cases the person in question can be the director and owner this will enable an additional set up of a company solo or with in partnership with other people.

Limited by guarantee companies are helpful for people that want to make money fast and individually, however partners can also be a part of this scheme where it is applicable in policy.

In these cases a company limited by shares should be inaugurated. Limited by share companyenables the shareholder to contract by selling a percentage to other business / people.

By being a shareholder it is not required to be liable solely for the individual company’s debits and responsibility is based purely on what the individual has agreed to pay for in advanced in terms of the shares of the company.

A limited company base, it more professional on perception and is more credible for partnership and contracts, as many businesses are more likely to seek limited companies.

Company Limited by Guarantee

Limited by Guarantee companies are:

Owned by either one or above 2+ shareholders that will be managed by one or more directors.

Limited by guarantee company are able to set up a business such as charity, organisation that is non-profit grounded with the owner’ssurplus income regarded to the company instead of personal gain.

When looking to form a non-profit organisational company the profits are put into the business to aid towards achieving certain objectives within the company, for example by promotional material etc. The profits made are not given to guarantors and the company will keep earnings.

The finances made by guarantors will be protected under the limited liability and are only responsible for the debts that come up within the business to the amount that they guarantee. With this type of company, other businesses are more likely to work with limited companies.

Limited Liability

When using the term limited liability in limited companies, it is essentially the level of responsibility in terms of financially as a shareholder / guarantor that a company debits. The finances and assets are therefore protected within the shares to the company.

In cases where a limited company is forced to cease business the owners will be at risk in losing value of the shares collected and the guarantees of the money that has been invested thus far. Many owners set up as a limited company or LLP due to the limited liability in place.

Benefits of Limited Company

The reason why many people set up a limited company is due to limited liability aspect but aside from this there are other benefits that can really grow a business:

  • Credibility
  • Professionalbusiness image
  • One person or multiple people can set up
  • Tax efficiency
  • Protected company name
  • Capital raise opportunities

Downsides

  • Extra filling required
  • Extra reporting required
  • Advanced accounting
  • Advanced taxation
  • Increased admin resource
  • Increased accountancy costs

Even with these downsides, the benefits are strong in the sense of overpowering the issues that may occur and is not a major problem for many limited companies.

For all companies, there information is held on a public record as a rightful method of allowing people to see companies are their credibility to do business with.

This information generally includes, address, directors, owners, set up date and any other important information that can be found on Companies House or other websites dedicated to public records.

Tax Benefits

The tax structure in a limited company is tax productive when it comes to the annual taxable income that that a company makes. As companies under a limited business are required to pay a flat rate fee, this is why the annual taxable income applies from the profits made.

Directors are then able to reduce the personal tax plus NI contributions through direct payment of a diversity of dividends and also salary.

Furthermore directors have the option to postpone tax via ceasing surplus income within the company bank account when withdrawing the income the following tax year.

For sole traders the tax advantages differ and do not apply in their case. They are required to pay a sum of income tax on all earnings that are taxed.

Furthermore they are not given an option as to reducing tax or liabilities within their NI.

Postponement of leaving tax profits is not valid and cannot be withdrawn at a later date following the tax year. The benefit of tax is a main factor in people setting up limited companies rather than a sole trader as the same benefits do not apply.

Many people choose to set a company up as limited due to tax efficiency and may also choose to go from sole trader to limited because of this benefit. Overall setting up a limited company has shown legitimacy and professional perception.