what is a Limited company?

This guide intends to give you a basic overview of the UK concept of a private Limited company. There are other types of Limited company which are touched on briefly but the document assumes an interest in private Limited companies which comprise the overwhelming majority of Limited companies in the UK.

3 golden rules
  • Limited companies are legal entities in their own right i.e. they are not people
  • They can be owned by multiple people
  • The owners of the company (shareholders) are personally protected
I'm starting a business with a friend. Limited company sounds right for me
what does Limited mean?
  • Limited means the owners risk if the company fails is limited
  • The total risk to the owners of the business is limited to the value of the shares they hold
  • If a company is created with 2 shares each valued at £1, the total liability of all the shareholders is £2
I am a homeowner, so limiting my personal risk seems sensible
types of Limited company
  • Limited companies come in 3 common types:
    • Private Limited Company (LTD)
    • Limited Liability Partnership (LLP)
    • Public Limited Company (PLC)
  • Almost always when somebody describes or refers to a Limited company, they are referring to a Private Limited Company (Ltd)
I want to start a regular business to make money, so Private Limited Company is right for me
ownership and control
  • A Limited company can be created with any number of shares.
  • A value is attached to the shares at the time of incorporation.
  • The owners of the shares own the company. If you own 1 share out of a total 2, you own 50% of the company
I'm starting a business alone so I'll just allocate 1 share
private
  • private Limited companies may not quote shares in a stock exchange
  • private Limited companies will typically sell shares to friends, family and business contacts
I don't expect to list my company on a public stock exchange
compliance
  • Private Limited companies are subject to a number of simple statutory compliance requirements
  • They must file an annual return to keep the public register up to date with ownership and control information
  • They must maintain a company register detailing ownership, control and meetings
  • They must file accounts with HMRC annually (within 9 months of business year end)
I hate paperwork!
Companies House
  • All Limited companies are registered by Companies House
  • Limited companies are allocated an unique company number to identify a specific company
  • The information held on Limited companies is on the public register and is available to all
My information will be held on the public register
naming
  • Limited companies can be called (almost) anything and the name ends with LTD or Limited
  • There are some sensitive terms that aren't allowed (i.e. Royal) and they can't be offensive
  • They may change names but will never change company number
I am creative, and I want my company name to reflect that
credibility
  • Private Limited companies are typically viewed with more prestige than sole traders
  • This can be useful when attempting to win business or work with larger companies
  • Some suppliers will only extend credit to Limited companies
I plan to do business with big companies. I really need a Limited company
management
  • The directors of a Limited company are responsible for its operation
  • A director must be over the age of 16
  • You may not be eligible to be a director if you are an undischarged bankrupt or a court rules you may not for other reasons
I didn't realise that anyone could become a director!

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