Limited Company

Click on the links below for more information:

What is a limited company?
Rules for running a Limited Company

What is a limited company?

There are two types of limited company - those that are publicly traded (known as a public limited company or plc) and those that are privately owned (identified by the abbreviation Ltd at the end of their name). We will focus on the latter.

The term limited refers to limited liability and there are around 1.7 million in the UK . If you're a sole trader or partner, you can be held personally liable for it - outstanding debts can be met from your personal assets.

A limited company, however, is a separate legal entity and can own property, incur debts, sue and be sued. Any business dealings are made on behalf of the company, rather than you. Its owners are liable only for the amount invested.

You must have at least one director to manage the business and a company secretary to make sure all the rules are followed and official records maintained.

How do you set it up?

If you want to trade as a private limited company, there are three things you need; payment to the registration body Companies House, a company name and a UK address. This is the address of your registered office - somewhere to keep official documentation, to receive official correspondence and where court documents can be served.

There are several methods of setting up a company. The first is to deal directly with Companies House. At £20, or £80 for a same day service, it is the cheapest option and there are staff give guidance on general matters such as filling in forms or company names.

However, registration can be time-consuming, especially if you make a mistake, and Companies House staff will not advise you about specific matters such as the content of the memorandum and articles. If you want enlist some help, a company formations service, solicitor or accountant can help you form a new company for a fee. Alternatively, you could also get assistance from an online registration company as Companies House now accepts applications electronically. The standard service usually costs £80-£100 including fees, but since some documentation needs to be posted, registration takes three to eight days.

However, many company formation services also provide sameday online processing for around £125.

Finally, you can buy an 'off the shelf' or readymade company. You simply transfer your name to an available one. The process can be completed on the same day but the choice of names may be limited.

Memorandum of Association

Part of the registration process involves stating the nature of your new company. This is done in a Memorandum and Articles of Association, sets of which can be bought from legal stationers. The Memorandum describes what your company is and does, by outlining the following:

• Company name : There are some restrictions - you can't include sensitive words like international and federation. It must finish with the word limited but not have it elsewhere. Also, it must not be offensive or imply criminal activity and cannot have been registered by anyone else. You can check for individuality by searching the Company Names Index at Companies House and the Trade Marks Register at the Patent Office. Refer to the Business Names Act 1985 and the Company and Business Names Regulations 1981 for more information. Name changes at Companies House cost £10, or £80 for a same day service.
• Location of the registered office: This is the UK country in which your company's registered office is located.
• Objects of the company : Here is where you describe what your company does. You must limit your business activities accordingly, so make it a wide statement, such as "general commercial trading company".
• Limiting the liability of the members: This means each owner of the company has to contribute no more than the value of their shares.
• Share capital . You must state the amount of capital in the company and how it is divided.

Rules for running a Limited Company

Articles of Association

Here's where you set out the rules for running your company. You must state how shares will be allocated and transferred, how the directors, the secretary and your meetings will be governed. And if you decide not to adopt the standard articles of the Companies Act in full - known as Table A - you have to submit your amended version when registering. Once your company is incorporated you can only make changes if the holders of 75% of the voting rights in your company agree, so it pays to get this right at the outset.

Sets of memorandum & articles of association can be purchased from a legal stationers or formation agent for £20-£30. Submitting your Memorandum of Association to the Company Registrar costs £20. Once processed, you will receive a Certificate of Incorporation and copies of your memorandum and articles of association.

Issuing shares

Shares have a nominal value and the money paid for the shares is held by the company as assets. Shares can be held by individuals or other companies, with the balance of power reflected in share ownership. So if someone has a 51% share they effectively have control of the company.

If a company winds up, the value of its assets is shared amongst the shareholders according to how many shares they hold. A shareholder can sell their shares at a price agreed with the buyer.

Although there is a limit to the number of shares that can be issued - as stated in the memorandum - there is no limit to the number of shareholders. Each one receives a share certificate as proof of ownership. Normally a new company has 1000 shares at £1 each. A form with the total number of shares allotted and to whom, must be submitted to the Registrar of Companies within 21 days.

Directors and company secretaries

You must have at least one director to manage the business. The secretary can also be a director, provided there is at least one other director. Their personal details and occupations must be submitted to the Registrar of Companies. A director must also detail any other directorships held in the last five years. There are no age limits for being a company director, except for a minimum age of 16 in Scotland . Undischarged bankrupts or those disqualified by court from holding a directorship are not eligible.

The company secretary makes sure company rules are followed and official records maintained. They must keep Companies House informed of changes of directors or secretary, annual returns and resolutions to change the memorandum and articles. Failure to do so can result in a heavy fine or being struck off the register.

Meetings and resolutions

A company must hold an annual general meeting for the benefit of shareholders, where directors report the company's performance. It is an opportunity for review for shareholders and a time for decision-making through voting. Extraordinary general meetings can be called to deal with pressing issues. Each meeting has a chairperson and a stated number of shareholders need to be present for any decisions to be made.

Decisions reached by voting at meetings are known as resolutions. The resolutions from extraordinary, special and elective meetings must be filed with Companies House within 15 days of being passed.

Displaying your company's details and certificate of incorporation

Once you get the all-clear on your name, you must show it on business stationery as well as on the outside of each place of business. Letterheads must also show the country of registration, registration number, the registered office's address as well as your VAT number - if applicable. Your Certificate of Incorporation should be displayed prominently in your main place of business.

You must also keep statutory registers, such as registers of shareholders and directors, that anyone can access. Certain registers must be kept at your registered office, with others at Companies House available for public inspection for a small fee.

Pros and cons

The pros

• Liability :
  Financial liability is limited to only what has been personally invested.
• Transfer :
  The shares of a company are more easily transferred than a partner's interest in a business.
• Longevity :
  A company is more than just the people in it, and still exists even when members resign, retire or die.
• Money-lending :
  Companies can create mortgages or floating charges over assets, making it easier to borrow money.

The cons

• Administration :
  Setting up a limited company means a lot of paperwork. And there is ongoing maintenance - for instance, you must file your annual accounts at Companies House every year.
• Privacy :
  For a fee, anyone can look at your company accounts or check your shareholder's identities.
• Guarantees :
  Shareholders and directors may have to personally guarantee contracts entered into with lenders or suppliers.
• Closure :
  Winding up a company is more complex and expensive than sole trading or a partnership.

Edmund house, 27 St. James's Road, Dudley, West Midlands, DY1 3JD