Limited companies

Limited companies exist in their own right. This means the company's finances are separate from the personal finances of their owners.

Ownership of a company is divided into shares. Shareholders (i.e. those who own shares) may be individuals or other companies. They are not responsible for the company's debts unless they have given guarantees (of a bank loan, for example). However, they may lose the money they have invested in the company if it fails.

• Private limited companies can have one or more shareholders. They cannot offer shares to the public
• Public limited companies must have at least two shareholders and must have issued shares to the public to a value of at least £50,000 before it can trade
• Private unlimited companies - these are rare and usually created for specific reasons

• Must be registered (incorporated) at Companies House
• Must have at least one director (two if it is a plc) who may also be shareholders. Directors must be at least 16 years of age
• Private companies are not obliged to appoint a company secretary, but if one is appointed, this must be notified to Companies House. Public limited companies must have a qualified company secretary

• A director or board of directors make the management decisions
• Finance comes from shareholders, loans and retained profits
• Public limited companies can raise money by selling shares on the stock market, but private limited companies cannot

• Accounts must be filed with Companies House before the time allowed for filing those accounts to avoid a late filing penalty
• Accounts must be audited each year unless the company is exempt
• Directors are responsible for notifying Companies House of changes in the structure and management of the business

Profits are usually distributed to shareholders in the form of dividends, apart from profits retained in the business as working capital.

• If a company has any taxable income or profits, it must tell HM Revenue & Customs (HMRC) that it exists and is liable to Corporation Tax
• Companies liable to Corporation Tax must make an annual return to HMRC
• Company directors are employees of the company and must pay both income tax and Class 1 National Insurance contributions on their salaries

Shareholders are not personally responsible for the company's debts, but directors may be asked to give personal guarantees of loans to the company; and may be fixed with personal responsibility if they do not comply with the duties imposed on them by law.

• The liability of the owners of the business is limited to the initial cost of their shares. However, it is not uncommon for business owners (particularly if they are also directors of the company) to be asked to offer personal guarantees when borrowing money or in other cases
• It is often relatively easier trying to raise money, and easier to sell part of the business (since you simply need to sell a number of shares)
• Employees are able to own a share in the business
• Suppliers and customers may perceive that limited companies have more credibility making them keener to do business with you

• Set-up. There is a cost in setting up a company, especially if you do this through a solicitor or accountant. However, these days it is possible to set-up a company quite cheaply (in some cases under £50) using web based services
• Administration. There is a whole mass of legislation applying to companies, and you will need to be aware of those that apply to you. There is also an annual return that must be filed at Companies House annually
• A company must file annual accounts at Companies House in a format that complies with recognised accounting standards. Any information you do submit to Companies House is a matter of public record and can be viewed by anyone
• In many cases, the accounts you produce must be audited. The cost of this can be relatively expensive (compared to producing non-audited accounts)
• National Insurance (NI). A company is obliged to pay employer’s NI contributions and most employees also have to make contributions, meaning that in total NI is higher than as a sole trader or partnership