Limited companies exist in their own right, distinct from the shareholders who own them. This means their finances are clearly separated
from the personal finances of their owners.
Shareholders may be individuals or other companies. They are not responsible for the company's debts (unless they have personally
guaranteed a bank loan, for example). However, they may lose the money they have invested in the company if it fails.
Main types
Private limited companies can have one or more members (eg shareholders). They cannot offer shares to the public (eg on the stock exchange).
Public limited companies (plcs) must have at least two shareholders and can offer shares to the public. A plc must have issued shares to a
value of at least £50,000, before it can trade. View the guide to company formation at the Companies House website.
Private unlimited companies - these are rare and usually created for specific reasons. Legal advice is recommended before creating one.
Set-up
Must be registered (incorporated) at Companies House.
Must have at least one director (two if it's a plc) and a company secretary, who may also be shareholders.
Management and raising finance
A director or board of directors make the management decisions.
Finance comes from shareholders, borrowing and retained profits.
Public limited companies can raise money by selling shares on the stock market, but private limited companies cannot.
Records and accounts
Accounts are filed with Companies House.
A "shuttle" annual return (form 363s) will be sent before the anniversary of incorporation each year. It needs checking, amending and
returning to Companies House with the appropriate fee.
The directors and secretary are responsible for notifying Companies House of changes in the structure and management of the business.
Profits
Profits are usually distributed to shareholders in the form of dividends.
From 1 April 2004, distributions to individuals by companies with taxable profits subject to a zero rate of corporation tax, are subject to
a minimum of 19 per cent corporation tax.
Tax and National Insurance
Companies pay corporation tax and must make an annual return to HM Revenue & Customs.
Company directors are employees of the company and must pay Class 1 National Insurance contributions (NICs) as well as income tax on their
salaries.
If your company or organisation has any taxable income or profits, you must tell HM Revenue & Customs that your company exists and that it
is liable to tax.
Liability
Shareholders are not personally responsible for the company's debts, but directors may be asked to guarantee loans to the company.
