Why form a Limited Company?

There are many reasons why the use of a limited company may be beneficial, here are some of the main reasons:

  • As a limited company the personal assets of the shareholders and directors are not at risk should the company go out of business. This means that they are protected if the company was to face receivership or a winding up petition, which would not be the case if they were acting as a sole trader or non-limited company.
  • Operating as a limited company can improve the credibility your business has with your customers and suppliers.
  • No two limited companies can have the same name, which avoids confusion when trading commences.
  • Limited companies are typically cheaper to run in terms of accounting fees and taxes. However, it is best to consult an accountant on this point before going ahead.
  • There may be tax advantages for high earners who are able to keep money in the business or put money in a pension scheme.
  • Limited companies can remain dormant for an infinite amount of time, meaning that you are able to protect a company name.
  • It is easier to secure additional funding through shareholders and banks.
  • Ownership of the company can easily be changed through the sale of shares.

Types of Limited Companies available:

You may already be a sole trader or a freelance, or you may not have stepped foot in business before. Perhaps you wish to have, or require, limited financial liability, reduced tax bills or protection from risk. 

No matter what your situation is, there are limited company options available for you to consider.

The most common legal structure you can choose is a private company limited by shares. This is suitable for most commercial enterprises, although you may wish to speak to your accountant for further information about other options.

The following main limited company structures are suggested as being available:

Private Company – Limited by Shares

This sets the company up as a separate legal entity which is owned by shareholders.

If the business runs into trouble, the amount that shareholders are liable for is limited to the value of any investment they have made in the shares of the company.

Any profits made belong to the company and can either be reinvested in the company or passed onto the shareholders using dividend payments.

The company cannot sell shares to the general public.

Private Company – Limited by Guarantee

Companies limited by guarantee are often social enterprises, charities or other not-for-profit organisations, such as sports clubs or political parties, that do not have owners.

All profits are reinvested back into either the organisation itself or its objectives.

Members of the company do not purchase any shares in this type of company.

Public Limited Company – PLC

This type of company is similar to that of a private company limited by shares; however, the main difference is that its shares can be sold to the public.

As a result, there are a number of additional legal requirements that must be met.

Private Unlimited Company

This type of company can have share capital but may choose not to.

There is no limit to the members’ liability.

Private Unlimited Companies disclose less information than other types of companies, because the members’ liability is unlimited.