Limited Companies
Private Company Limited by shares, Company Limited by Guarantee
Different Types of UK Companies
There are four main types of UK company which can be registered.
These are: Private company limited by shares (Ltd), Company limited by guarantee (Ltd), Public limited company (PLCs) and less commonly known Unlimited company.
When forming a company, the choice of which type to adopt is an important one and requires adequate consideration. Forest Accounting Limited can help you to make the correct choice.
It may be that starting a new company is not the right way forward. In this case you will need to consider another type of business entity, which offers a simpler set up and management option. Amongst these are Sole trader, General partnership, Limited partnership (LP), and Limited liability partnership (LLP).
Changing the type of business entity will be possible in certain situations, whereas in others, it will not be an option.
For example, it is not permissible to change the type of company from one limited by guarantee to one limited by shares.
Registering a company of any kind will carry with it its own set of business regulations which have to be adhered to. Some of the requirements are more stringent and potentially onerous than others, particularly those for public limited companies.
Tax & Liability Benefits
Limited Liability - what does it really mean?
First and foremost, the principal benefit of trading via a limited company has always been the limited liability bestowed upon the company's officers and shareholders. As a sole trader your personal assets are at risk, but not for a limited company.
Directors' or shareholders' personal assets are not at risk in the event of a winding up or receivership, and as often happens, such events are not always under our own control.
Operating as a limited company often gives suppliers and customers a sense of confidence in a business. Larger organisations will prefer not to deal with non-limited businesses.
The costs associated with operating a limited company are no longer greater than with a non-limited business.
The formation of a limited company is one simple and low cost method to protect a company name. Whilst this does not in itself give any rights to use of the business name, many clients incorporate companies in anticipation of future development of new businesses or in order to protect the limited company name of an existing non-limited business for the future.
If a limited company becomes insolvent and is wound up, only the assets of the company are used to try to clear its debts. The officers of the company have no personal liabilities and the shareholders are liable only to the extent of any unpaid shares held which is rare.
By contrast if you trade as an individual, the creditors can claim on all your property to satisfy the debts, and if this is insufficient you may be declared bankrupt. An undischarged bankrupt is forbidden to start another business or to become a director of a limited company.
Summary
The company has a legal existence separate from management and its members
Members' liability is limited
The company's name is protected - Incorporation of a limited company protects it from use by another limited company
It has flexible borrowing powers
The company continues despite the death, resignation or bankruptcy of management and members
The interests and obligations of management are defined
Appointment, retirement or removal of directors is straightforward
New shareholders and investors can be easily assimilated
Employees can acquire shares
Taxation: sole traders pay income tax. Sole traders income is taxed as the proprietors income, regardless of how much profit is retained as working capital, and interest on loans to the business is taxed as income.
Directors pay income tax and the company pays corporation tax on company profits, and with current rates of tax company profits earned and retained in the business are assessed to corporation tax at lower rates than if income tax were payable on equivalent profits earned by an unincorporated business
Setting up a limited liability company offers just that - limited liability
Shareholders in a limited liability company are only liable to lose the share capital they subscribe
For sole traders and in partnerships, the individuals personal assets are at risk if there is a claim against the organisation
A company is a legal form of business organisation. It is a separate legal entity and, therefore, is separate and distinct from those who run it. The company (and not the shareholders) is the appropriate person to be sued in the event that debts are incurred by the company which remain unpaid, despite demand
Scope for greater company pension scheme to be secured through a limited company
A limited company has a greater ability to raise finance by the issue of shares.
Shareholders looking for outside investors to invest may be able to take advantage of the tax incentive Enterprise Investment Scheme, substantially reducing the cost to te prospective investor, and enhancing the ability to attract new capital.
Ownership of a limited company can be spread over a greater number of people
Personal tax advantages can accrue for directors of a limited company
There may be a greater degree of business credibility of trading through a limited company
The rights of shareholders are normally clearly defined and protected
Maximising the tax benefits of a limited company
One of the main focus for small businesses will be the maximising benefits to minimise tax. This can be done by:
Ensuring that your company makes pension contributions
Claim the maximum possible expenses allowable under legislation
Capital equipment used in your business is purchased and capital allowances claimed
Ensuring that benefits in kind (insurance, health care etc.) are paid out of the company
Other considerations are :
Keep cash in the business as a loan to the business, so that the company receives interest gross
Ensuring that other income streams are generated by the company and that expenses are allocated to that income, that way no tax is paid on some income
Make investments through the company, but ensure sure you use up your own capital gains tax free allowance as well as that of your spouse, first before making investments from the company
Often it is possible to reduce the corporation tax, with careful planning, by making dividend payments to its shareholders, and by the use of a company pension scheme
Raising finance
A limited company has an advantage of raising finance by selling issued shares to investors. The value of a share depends on the viability of each individual company, and not the nominal value of a share. It may also raise finance by means of overdrafts, debentures and loans.
Continuity of business
The death or resignation of any officers of the company does not affect the structure of the company, which may continue to trade as before. Any shares held by them may be passed on to the others.
Protection of your business name
Registration legally protects the company name against anyone else forming a similarly named limited company either in sound or spelling.
Legal Requirements
The company has several key obligations during the course of the year.
Financial Statements must be filed with Companies House within 9 months of the company year end
A Company Annual Return to be filed bringing the information held by Companies House up to date
A Corporation Tax Return is due within 12 months of the company year end
Any Corporation Tax due is payable within 9 months of the company year end
At Forest Accounting Limited we offer a compliance service that ensures that you meet all these obligations.
There are several legal requirements of the company. We have outlined the main ones here.
The company must have at least one director and a registered office
The legal requirement to appoint a company secretary was removed from 6 April 2008, but existing companies deciding to dispense with a company secretary must inform Companies House either via WebFiling or on form 288b, and may also need to alter their Articles depending on if there is specific mention of the company secretary or just secretary duties
The registered office must be in England or Wales if the company is incorporated in England and Wales
The office can be your home or work address but must be an effective address for receipt of official correspondence. We suggest that you check any lease agreement to determine whether there is any problem with having a business registered at the property. Many clients use Forest Accounting Limited who are Accountants in Hampshire as their company secretary and our office as their registered office, ensuring that important correspondence from Companies House is dealt with promptly.
The limited company is viewed as a separate legal entity and as such requires its own business bank account in order to trade. Forest Accounting Limited can assist in finding the right bank account for your business.
