What is a Limited Company?

A Limited Company is one of the most popular legal structures a sole trader or self-employed individual can choose to run their business. There are numerous benefits that go with it, including a lower tax rate and something known as ‘limited liability’, which makes the business its own legal entity.

Keep reading to find out what a LTD company is, the benefits and how to register a limited company yourself.

What is a LTD company?

In short, a limited company gives your business its own legal entity, completely disconnected from owners or shareholders, even if it’s just you involved in the company. This means that in the event your company gets sued – assuming there’s no fraud at play – it’s just the company that does, and so your personal financial assets will be completely separate.

Different types of limited company

Limited companies come in three different varieties, which are: company limited by shares, company limited by guarantee and limited liability partnership. Take a look below for the key factors of each type.

Company limited by shares

This type is the most popular with small to medium sized companies as it can be set up with multiple individuals. The company is owned by shareholders and then individuals will buy shares by investing money in the business, therefore how much they own is based on the number and value of their shares. The number and value of shares impacts a lot of business factors including financial liability and how much profits are given. Shareholders will also receive dividend payments which they can either choose to reinvest in the business or supplement their own income.

Company limited by guarantee

A company limited by guarantee is popularly used by non-profits or charities and usually with this type, any additional income will get reinvested into the business. There are no shareholders involved, just one individual known as a ‘guarantor’. This guarantor’s personal liability is subject to a fixed amount of money or ‘guarantee’, and a guaranteed sum will need to be paid to the company if it can’t afford to pay its bills.

Limited liability partnership (LLP)

With a limited liability partnership, instead of shareholders, there are partners. The partners aren’t liable for their share, but all members are equally responsibility for the business, so if there’s a company with only two partners, they’ll both have a 50% share. This option is best if all parties want to be equally involved.

Benefits of a limited company

Aside from gaining limited liability, there are quite a few benefits of a limited company, including:

You’ll pay less tax

If you register as a limited company, you may actually stand to pay less tax than a sole trader as the corporation tax rate is currently 19%. Additionally, if you choose to give yourself a small salary and then take the rest of your income from business dividends, this will reduce your National Insurance Contributions, as dividends aren’t subject to NICs.

It’s more professional

Another benefit of a limited company is that they could appear more professional to potential clients. Many larger businesses could be put off by sole traders if they think of them as less reliable.

Your own company name

As a limited company, you’ll get exclusive rights to your company’s name, providing it’s available. If you’re not sure if the name you want is available, use the Companies House name checker.

How to register a limited company

It’s actually relatively easy to register your limited company. The best way to do it is online via the GOV.uk register your company service, which also registers you for corporation tax at the same time. In order to register, you’ll need 3 pieces of personal information for you and your shareholders or guarantors. This can be any of the following:

  • Passport number
  • Telephone number
  • National insurance number
  • Mother’s maiden name
  • Father’s first name
  • Town of birth

The registration fee is £12 and once registered, you’ll receive a certificate of incorporation which confirms that your business legally exists.

Note: If you want ‘limited’ excluded from your company’s name, you’ll need to register by post instead.

Additional obligations of a limited company

Of course, it can’t all be sunshine and roses, and there are additional obligations that come with registering as a limited company. For one, your company will be required to file accounts and a confirmation statement every year for Companies House which makes your business less private as anyone can view it. Additionally, you’ll need to file a Corporation Tax return each year. There are also separate rules and regulations for pensions, dividends and car ownership to be aware of.

How SixtyFour8 can help

Don’t let the additional paperwork and obligations put you off though! At Accountancy Solutions, we’ll be happy to help. Not only can we help you to make maximum use of limited company rules and regulations, but we can also fill out your corporation tax return and send all information to the public register for you. So, all that’s left for you to do is to focus on running your business and reap the benefits.

Still struggling to decide between being a sole trader or a limited company? Take a look at our complete guide to both.