This business structure, as the name implies, is one wherein the liability of the directors of the company is limited. The company’s finances are treated as separate from personal finances of the directors. This is not so in the sole trader model. The shareholders of a limited company are not responsible for any debts accrued by the company; however, the directors have to provide guarantees for any loan that is taken in the name of the company.
Limited Companies – Requirements
Any limited company must satisfy the following important criteria:
- The limited company must be compulsorily registered with the Companies House.
- The company’s annual statement of accounts must be submitted to the Companies House.
- The annual returns of the company (Form AR01) must be duly submitted to the Companies House every year. This is accompanied by a fee. This ensures up-to-date information as regards the financial state of the company.
- The HMRC must be duly informed every year if the company earns a taxable income or makes a profit.
- The limited company has to submit a corporation tax returns statement, duly filled up, every year. Any liabilities in this regard are expected to be paid within 9 months of the company’s year end.
- It is compulsory for all the company employees to pay income tax as well as NICs on any income received.
Company Formation – Procedure
The registry of companies is held at the Companies House which regulates registration of all limited companies. Prior to starting a limited company, it is mandatory to register it at the Companies House. The company registration can be done directly by you, through an agent, or through your accountant. Listed below are some of the documents that are to be duly filled in and submitted to the Companies House:
- Memorandum of Association which includes all the names and addresses of the promoters of the company.
- Articles of Association which specifies the powers of the directors, lists rights enjoyed by the shareholders, etc.
- Form IN01 which includes details of the share capital, the directors, the shareholders and the company secretary if deemed necessary. The Form IN01 is required to be submitted in lieu of Forms 10 and 12 with effect from 1st October 2009 with changes in Companies Act.
Many companies use the services of agents for the preparation and submission of the above mentioned documents.
The website of Companies House has a comprehensive FAQs section that clarifies all requirements of the process of registration of a limited company, the conditions required to be satisfied for naming the company and the registration fee that has to be paid to complete the registration procedure.
Limited Company – Types
Limited companies can be either Private Limited Companies or Public Limited Companies. Private Limited Companies is the most popular option for small businesses in the United Kingdom. Though the company may have any number of shareholders, these companies cannot offer shares to the public. Such a company should have at least one director and can optionally hire a company secretary (according to Companies Act of 2006).
A Public Limited Company (PLC), on the other hand, can offer shares to the public to raise funds. A PLC should have at least 2 directors on the board for the purpose of making decisions on behalf of the management and a company secretary.
In these modern times it is possible to form a limited company using online facilities provided for the purpose.