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How to Set Up a Limited Company in the UK

What is a Limited Company?

What exactly comes to mind when one mentions a limited company? A corporation? True, it’s a form of an association in which the owners or partners are a separate entity from the company. One can say an invisible, artificial form that runs like a corporation.

  1. How to Know If It is the Right Choice for Me?
  2. Benefits of a Limited Company
  3. Drawbacks of a Limited Company
  4. How to Register – Steps to Create a Limited Company in the UK
  5. How To Run Your Limited Company
  6. Limited Company Tax
limited company
A limited company is a form of an association in which the owners or partners are a separate entity from the company. (© unsplash.com)

A limited company can be limited by shares or by guarantee. The main difference between a company limited by shares and one by guarantees is that limited companies by shares are allowed to keep the profits attained after payment of corporation tax. On the other hand, a company limited by guarantees is required to reinvest the profit attained after payment of corporation tax back into the company.

It is a safe form of investment for the shareholders will only be responsible of the amount of money they have invested in, and so in case of company debt, their personal incomes will not be involved.

How to Know If It is the Right Choice for Me?

The right choice in every business opportunity varies, but it should satisfy your need in regards to one’s expectations, specifications, investment capability, relations, time frame, and interest.

Limited companies are usually divided into stocks that one buys to be part of the company. Legally registered companies typically have a document called Articles of association that keeps them in check, in terms of accountability and provide a clear picture of the investments that the company deals with. It is this knowledge that will ensure one who is interested in taking a thorough check into the company for several years back and the future goals to make the optimum decision explicitly tailored for their needs.

Benefits of a Limited Company

  • It is a separate entity from its owners; hence a change of ownership rarely affects the continuation of the business, and this gives it excellent potential for growth.
  • A shareholder’s strength is the number of shares; hence they can invest in the business or sell their shares without the continuity of the business being affected.
  • A limited company is an independent entity on its own hence it can pay tax, sue or be sued without the finances of the shareholders being affected.
  • The professional status and worth of one increases when they opt to trade as a company for they are usually monitored

Drawbacks of a Limited Company

  • It is highly regulated by the government; hence the level of tax may increase depending on its outcome or growth.
  • At times, it is difficult to join a limited company if the shareholders decide not to sell their shares or if their asking price is too high.
  • It involves complex accounting that is further governed by restrictive rules as compared to the other forms of businesses, for they are required to produce a double entry form and balance sheets yearly.
  • The sale of shares to increase the sales of the business may with time bring about the dilution of the authority as more and more people will be part of the business depending on the depth of their pockets, and with this, they will come with conflicting ideas in terms of how the business should run.

How to Register a Limited Company – Steps to Create a Limited Company in the UK

Now with the simple understanding of a limited company, make sure that this is the business frame you need. If not, no worries, there are many more forms of business ownership that can suit your needs.

  1. Create a name. Be creative, choose one that will bring out the real meaning of your limited company and attract the target groups you are aiming for. Note, there are rules in name selection in the business world to avoid plagiarism and fraud; one is expected to abide by them.
  2. Create a board of directors. They are needed for the management of the company, e., filing tax in time and implementing the Articles of Association.
  3. This is your business, and so you need to elaborate on your target groups to choose the future shareholders of your company. It is wise to ensure that at least one of the shareholders is on the board of directors.
  4. The majority shareholder usually becomes the chairperson of the company, but it is also wise to choose people who will have voting rights in decision making, for example, anyone with more than 25% of the total shares.
  5. Legally, one needs to prepare Articles of Association that the board of directors will implement and to ensure strict follow up both legally and financially. It should entail the amount of tax to be paid, the number of meetings, protocol to be followed in specific business dilemmas and rules that govern what one should or should not partake in a while in the company.
  6. Accountability of the records is key to not only starting a company but in maintaining one. Financial and accounting records and other records that govern the company should be well kept and easily retrievable when requested for.
  7. When all is done, the company needs to be registered with the companies house and from this registration one will receive a SIC code that generally defines the purpose of your company

How To Run Your Limited Company

  1. Written rules (Articles of association) – Several pieces of research done on the human mind shows that written rules are the best for they provide a permanent foundation in solving of problems. They should, however, be flexible depending on the circumstances, fair to all the members and abided by all, no exceptions.
  2. Ensure prompt filing of the tax to avoid fines and penalties.
  3. The account records should be delivered in time, and they should be up to date.
  4. One should avoid and report corruptive and anticompetitive events.

Limited Company Tax

Limited companies usually pay corporation tax. It is generally based on their profits. Remember that a limited company is considered a separate entity and so for one to get their salary, they should merely request for a dividend.

As we have seen from the article above, limited companies are entities that provide their members with myriads of benefits, especially in these tough financial times. By following the steps that have been highlighted, you can rest assured that you will be on the fastest train towards fulfilling your dream of successfully setting up a limited company in the UK.

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