AR Company Formations

Why a Limited Company?

First and foremost, the principal benefit of trading via a limited company has always been the limited liability bestowed upon the company's officers and shareholders. As a sole trader or other non-limited business, personal assets can be at risk in the event of a failure of the business, but this is not the case for a limited company. As long as the business is operated legally and within the terms of the Companies Act, the personal assets of the company’s directors and shareholders are not at risk in the event of a winding up or receivership. And as often happens on occasion, such events are not always under our own control.

A company is operated and controlled by its Directors, and any other officers for example, employees and shareholders. This means that shareholder’s financial liability is limited to the sum of the shares they own. E.g. if a shareholder owns 1 share of £1, they must contribute £1 to the debts of the company by paying for their share and if they have 100 shares of £1 each, they must contribute £100. If the company closes (i.e. it is ‘Wound Up’) and has outstanding debts to creditors, this contribution is not returned to them. However, they are not required to contribute any further funds (subject to any agreements with third parties), thus their liability is ‘limited’. If the company closes with no outstanding debts, the sum of the shares they own is returned to them, along with their share of any distributable profits. Similarly, if a third party should take legal action (e.g. to request compensation for an accident), this action is taken against the company and not the directors (subject to legislation governing director’s fiducial duties).
However other reasons for registering as a limited company may include possible taxation advantages, property holding, and the ability to interest external finance.
Operating as a limited company often gives suppliers and customers a sense of confidence in a business. Quite often, larger organisations in particular will prefer not to deal with non-limited businesses.
Many of the costs associated with managing and operating a limited company are no longer much greater than with a non-limited business. Accountants and other professional advisers often have conflicting views on when they consider the benefits of being limited to outweigh the advantages of being self-employed. In general terms, at least from the perspective of taxation and accountancy, changes to legislation over the last few years have meant much lower costs associated with limited companies.
The Companies Act 2006, fully in force from 1 October 2009, de-regulates parts of earlier Company Law making the operation of a private company much easier in practical terms.
There is no obligation for a limited company to commence trading within any set time period after its incorporation. This means that the formation of a limited company is a simple and low cost method to protect a business name. Whilst this does not in itself give any rights to the use of the business name, many clients form companies in anticipation of future development of a new business or in order to protect the limited company name of an existing non-limited business for the future.
What Type of Limited Company?
 Private Limited Company
 Normal commercial trading purposes
 Suits the majority of requirements in the UK
 Can undertake any nature of business
 Can operate anywhere in the world
 Members have limited liability
 Can have a sole director and sole shareholder
 Must also have a company secretary - there must be at least two separate officers (director/secretary)
 Can have corporate officers
 Recent changes to corporation tax make LTD companies advantageous to most businesses
 Can be incorporated in most circumstances within 24 hours
 Own choice of name
Guarantee Company
 Non-profit corporate entity
 Suitable for clubs, membership organisations, sports associations etc
 Can apply for charitable status
 Members have limited liability
 Can be incorporated in most circumstances within 24 hours
 Some input required from client to establish main objects
Public Limited Company
 Necessary if the company is to trade its shares to the public
 Can undertake any nature of business
 Can operate anywhere in the world
 Members have limited liability
 Incorporation within 5-10 days
 Own choice of name
 High initial capital commitment
 Must have at least two directors and two shareholders
 A private company can be converted to a PLC, so most PLCs start life as normal private companies and convert at a later date prior to flotation of the stock markets
Limited Liability Partnership
 A new type of structure introduced in 2001 in the UK. Suitable for new and existing partnerships wishing to obtain limited liability status, and aimed particularly at professional partnerships such as accountancy and solicitors firms
 Maintains tax status of a partnership
 Members have limited liability
 Incorporation in 5-10 days
 Suitable for most commercial business activities



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David Collard & Co, Taunton