Setting up a Limited Company: A Simple Guide
Are you registering your business as a limited company? This quick and easy guide will provide you with key information for setting up a limited company as well as its many advantages.
As a new business owner — particularly during the period of setting up your company — you’ll undertake several important tasks, such as getting a business phone number and organising your physical or virtual office. However, setting up your company as a limited company is arguably the most important task you’ll undertake, as this brings with it new responsibilities.
So, to help make the task easier here’s everything you need to know about setting up a limited company:
What Is a Limited Company?
A limited company is a company that is incorporated and issues shares to its shareholders. It is usually managed by directors — also known as “company officers”. Every limited company must have at least one director and is run by one or more of its owners or directors.
GOV.UK defines a limited company as “a company limited by shares or limited by guarantee company”.
- Limited by shares: These businesses usually make a profit. This means the company:
– Has shares and shareholders
– Is legally distinct from those who run it
– Has separate finances from its owners and directors
– Can retain the profits it makes after paying tax - Limited by guarantee: These businesses are usually “not for profit”. This means the company:
– Has guarantors and a “guaranteed amount”
– Is legally distinct from those who run it
– Has separate finances from the owners or directors
– Has profits invested back into it
How Many Types of Limited Companies Are There?
There are two types of limited companies: “public” or “private”.
The main difference between the two is a private limited company does NOT publicly trade shares and is limited to a maximum of 50 shareholders.
Private Limited Company
- Most UK companies are private limited companies (LTD).
- Private limited companies are legally distinct entities with separate assets, liabilities and profits.
- Limited liability covers shareholders’ finances. Their liabilities are limited to the value of their shares.
- The company shares cannot sell shares to the general public
- Private companies have to file specific legal documents, including Articles of Association and a Memorandum of Association — both of which form the company’s constitution.
- A secretary is optional in a limited company.
- A limited company must submit an annual return to Companies House.
- An annual general meeting (AGM) — a yearly meeting between shareholders to discuss progress — is not a requirement for private companies.