Limited companies are legal entities that allow individuals to form businesses in which they hold shares. The business is owned by shareholders, who are usually members of the same family. In the UK, a Limited company is a legal entity that must be registered at Companies House. Limited Companies have articles of association governing them. The Article of association has rules that the Limited company must follow. The Article of association has the following details:
- The directors’ appointments
- Resignation and termination procedures
- Description of director’s powers and responsibilities
- The procedure of issuing shares
- Organization’s general meeting minutes
- Share certificates
But what exactly are limited companies? And how can you set one up?
A limited company has two main characteristics: It is not taxed at source (unlike an individual), and its profits are distributed among its shareholders rather than being retained by the company. This means that the company cannot pay dividends to its shareholders. Instead, any profit made must go towards paying off debts, buying new equipment, or investing in other projects.
A Limited Company is the most common type of company in the UK. A Limited Company is separate from its owners and has its legal obligations and rights. The legal obligations and rights are separate from those of members and directors. A limited company offers liability to the members of the company. This makes it one of the most preferred types of company.
With this in mind, we will discuss some of the advantages of a Limited UK company. Many people in the UK prefer starting up Limited Companies. Here are some of them:
Starting a Limited UK Company is quick and easy
One of the advantages of a Limited UK company is it is easy to form. A business owner who wants to start a Limited Company can do it online. One does not have to go to the Companies House physical office to start a Limited Company. All one needs to do is log in to the Companies House page and fill in the needed documents. It can happen in hours. Approvals of Limited Companies are quickly done.
Starting a Limited UK Company is also cheap. It costs around 13 Euros. All you need to have with you is
- A unique company name
- The official address of the company
- The directors’ information
- Shareholders information
- Share capital
- National Identification card. Proof of address documentation for the account holders.
Running a limited company is easy. One can hire a contractor and accountant to do most of the work. Limited company owners can have most of their work done by others.
The company has a separate legal entity.
Limited UK Companies have separate legal entities from the owners. It means that the shareholders and directors cannot conduct any business on behalf of the company. The Limited Company will be responsible if any debts and liabilities are incurred.
Another advantage of a Limited Company being a separate legal entity is that the company will continue if the directors die. A limited company can also be sold and transferred to people other than the original owners. A Limited company will continue existing.
Owners have limited liability.
It is an advantage of a limited company. Limited companies have directors, members, and shareholders. For a limited company, any personal assets the members might have are separate from the company’s finances. A limited company is a separate legal entity. The company will therefore be responsible for all its assets, liability, and profits.
If the shareholders had made some investments in the company, if the company gets into trouble, they will be responsible for the investments they invested in the company.
Improved Reputation and Credibility
Starting a Limited Company might build confidence in customers and suppliers. A limited company shows that the management is responsible and effective. Many people will want to do business with such companies.
Other businesses also prefer doing business with limited companies. Many business opportunities will come if a business has been registered as a limited company. When forming a limited company, accounting reports are supposed to be made available. It helps a limited company to be known by other companies that might want to conduct business with the limited company.
Easier to access finance
A limited company can get more capital by issuing new shares. It happens when a company sells or gives new shares to shareholders: whether new or old. A limited company can also offer new shares to corporate bodies or individuals.
Protection of company name
For a limited company to be registered, it needs to have a name. Once a limited company has a company name, the law protects the name. You will not find two limited companies sharing the same name. If someone else is to use the name of your limited company, the person will face the law. Sole proprietors do not enjoy this advantage.
Pension
A limited company can make pension contributions for its employees. The tax relievable pension contribution will be a bit higher than that of an individual. The pension contributions will be tax-deductible expenses hence the company will get a corporation tax relief.
Succession
The succession process for shareholders in a limited company is smoother. If a shareholder wants to leave the company, the shares can be sold or transferred to another person. Selling equipment and clients is a smoother process.
Raising capital through the public issue of shares
It is an advantage to a public limited company. Public limited companies can quickly raise share capital. A public limited company can sell its shares to anyone. Raising company capital is a faster process.
Prestige and Confidence
A public limited company has the name “PLC” at the end of the company name. It helps public limited companies a lot. Many customers and investors want to conduct business with public limited companies because they are more trusted. Public limited companies get more attention because they are also listed on stock exchange markets. More people will be able to recognize and do business with public limited companies.
Easy transfer of shares
Shares are smoothly transferable in public limited companies. The shares are listed on stock exchange markets where potential and current shareholders can buy them without any trouble. The share transfer process is seamless. Shareholders get their shares at the point of purchase.
These are some of the advantages of a Limited UK Company. Before starting a limited UK company, a business owner should consider both advantages and disadvantages to see which type of company will be the best for the business.