A limited company is a form of business structure where a company has a legal identity that is distinct from its owners. The company can, therefore, enter into a contract and be sued in its rights. The money generated by the company belongs to it and not to the owners; they can’t take money from the company wherever they want.
In the event where a limited company gets sued over a debt, the shareholders don’t have to sell their property to settle the debt, unless they have given personal guarantees. Here are the top 5 things you should know about setting up a limited company.
1. Types of Limited Companies
Private-limited companies have between two and fifty members whose liability is limited to the number of shares held by them, respectively. The transfer of shares is limited to the members, and the public cannot access their shares or debenture. Most private limited companies are small since there is no minimum capital requirement to incorporate in the business aside from the issuing of at least one share.
The public limited companies have a separate legal entity, and the liability of the members is also limited. It requires a minimum of 7 members, but there are no maximum requirements. The board makes significant decisions of directors, and the shareholders don’t take part in the management, thus separates ownership and control. It offers its shares to the members of the public.
2. Requirements for Setting up a Limited Company
A company name is required, which must be unique and does not contain sensitive words; the name is limited to 200 characters and needs to end with the name ‘limited’ or the abbreviation LTD. A registered office address use is also required to receive and send official mails. Present the company officials, at least one director; you also need at least one shareholder, someone who will own the company, a company secretary is optional for private limited companies.
The company must now keep a record of people with significant control, those who own 25% or more of the companies’ shares. Ensure that your company has an article of association that governs all aspects of running the company.
A memorandum of association is also required to confirm the subscriber’s intentions to create a limited company, and a standard industry classification code to identify what a business does.
3. Advantages of Setting up a Limited Company
- It minimizes personal liability; a limited company is treated as a separate legal entity.
- Your professional status and image will increase when you start trading as a limited company.
- Higher personal remuneration, there is reduced income tax and National Insurance contribution.
- It is a separate legal identity.
- The limited company structure will add credibility and prestige to your business.
- You can raise additional revenue by selling shares to new investors.
4. Disadvantages of Limited Companies
- The business is liable for corporation taxes, a tax on the business’s profits.
- There are strict procedures for withdrawing money from the business.
- You must officially incorporate the business at the Companies House.
- It requires disclosure of personal and corporate information on the public record.
5. Dissolving a Limited Company
You can terminate a company if it has not proved profitable as expected in case of insolvency or if the business has completely served its purpose. It can only get dissolved if it has not traded in 3 months, it has not changed its name or sold any property rights, and there are no ongoing legal proceedings against the company.
To start the dissolution process, you need to cease trading and inform the relevant parties, employees, creditors, and shareholders of your intention to dissolve it. Make staff redundant, pay all the money you owe them, sell all the company’s assets and stock, then distribute the finances among the shareholders or use it to pay outstanding debts. Prepare financial accounts and tax returns then settle all tax liabilities; you can now deregister the company from taxes. Terminate all contracts, close the company bank accounts, and fill in the striking off application form.
You will need a majority of the directors to sign it, then send it to Companies house and pay the appropriate fee. If your company meets the requirements, and you have taken the necessary steps, the application will be accepted and published in the gazette.