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FAQ's about Limited Companies

  1. What is a limited company?
  2. What advantages are there?
  3. What are the disadvantages?
  4. How quickly can my company be formed?
  5. What name can I use?
  6. What is the difference between directors and shareholders?
  7. What is a Registered Office?
  8. What are the Memorandum & Articles?
  9. How is the company set up?
  10. What do I have to disclose about the company?
  11. I already have an overseas company, do i need to form a UK company?
  12. What will the annual running costs be?
  13. Do I have to trade immediately?

We trust that the above information is of use to you, and look forward to being of service to you in the future. However, if you should have any further queries please do not hesitate to contact us. In the meantime, if you have a more detailed technical question which you would like us to answer free of charge please send us a message by clicking here. If you would like us to do a free name check to see if your choice of name is available please click here.







1. What is a Limited Company?

A limited company is a separate legal entity which, amongst other things, can trade, own property, sue and be sued in its own name. The legislation which controls companies is primarily to be found in the Companies Acts. Certain Government Departments are responsible for ensuring that companies abide by the law - for example, the Department of Trade and Industry, of which Companies House is a division.

Legally, a company is a distinct and separate entity from its owners and managers. It pays tax in its own right, has its own credit rating, and carries on business on its own account - it has what is called a separate legal personality.

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2. What Advantages Are There?

The major advantage of using a limited company is that, unless you sign a personal guarantee or trade fraudulently, you cannot be held personally liable for a company's debts - if you trade as a sole trader or partnership you are responsible for the businesses debts to the extent of your own personal assets, and you could ultimately be made personally bankrupt.

A limited company is "limited" because the liability of its owners is limited to the amount of share capital which has been issued for which they have not paid. For instance, if a shareholder is issued with shares with a "nominal value" of £10,000 and he pays the company £5,000 then he can be asked for the other £5,000 in the event of the company going into liquidation. If he is issued with shares with a nominal value of £2 which he pays for in full then in the event of a liquidation he cannot be asked for any more money.

The tax implications of trading through a limited company as opposed to as a sole trader or partnership should be discussed with an accountant, as it is very dependant upon individual circumstances. However, a limited company can most certainly be viewed as an "insurance policy", especially for a new or a high risk business, and the tax and cost considerations may well be secondary to ensuring that you do not risk your personal assets on a speculative venture.

In addition to limited liability, a company can have the following advantages:

  • You can give a share of the business to others, e.g. family
  • It may be easier to attract people to invest money in your business
  • Obtaining bank loans may be easier
  • There may be lower tax payments
  • In the event of a partner leaving, or somebody dying, it is easier to continue the business
  • It is easier to sell the business
  • You have a better standing in the public eye
  • It can assist in the protection of a name
  • People have more confidence in your business as they can check up on your company, on the public records, at Companies House
  • Subcontractors and agency workers will find it easier to obtain work

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3. What are the Disadvantages?

  • The preparation of annual accounts may cost more.
  • The public can check up on certain aspects of your business

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4. How Quickly can my Company be Formed?

If you have a name which you want to use for your company the normal procedure is to form a "custom-made" company. This normally takes six working days from receipt of your instructions (i.e. a company ordered on a Tuesday will normally be incorporated on the following Wednesday, subject to bank holidays etc.), and the company is formed to your own choice of name immediately.

If time is of the essense then generally an "off-the-shelf" company is usually the answer. This is a company which is already formed, and we can provide you with a list of available names on request. This option means that you can have limited liability status within a matter of minutes. If the name is not to your liking then we can arrange to effect an immediate name change for you; this takes the usual seven working days, but the company already exists and can commence trading immediately (think of the name change as being similar to changing your name by deedpole; you are still the same individual before and after, but your name has been legally changed). We offer a "package" price for the purchase of an off-the-shelf company with an immediate name change.

We always have from stock a large number of off-the-shelf companies with non-descriptive names. Our private companies have a standard authorised share capital of one thousand pounds. Once the ownership has been transferred and the new officers appointed the company can start trading immediately.

As an alternative, it is possible to arrange either a same-day or next-day incorporation. This means that the company is set up from scratch to your choice of name. However, this is considerably more costly than using an off-the-shelf company.

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5. What name can I use?

To check if the name you are interested in is available, please click here. Generally, a company may be formed with any name which has not already been used by another company, providing that name is not offensive. However, there are also various restrictions; for instance, a name cannot include words such as Bank, Building Society, British, National, International, Group, Holding, Chamber of Commerce etc. or any word that may indicate a connection with Royalty or Government, without prior consent.

While a company name may be registered if it only differs from an existing name by one letter, the existing company has the right to object to the Registrar of Companies who can if he agrees with them direct the new company to change its name. You should also be aware that if you adopt a name which misleads the public into believing that your business is that of another business - for example, trading as a department store under the name 'Harrods' - then you may face a legal action for 'passing off' by the person whose business you have affected. Registration of a name by Companies House is no guarantee that you are safe from such an action EVEN IF THEY DO NOT HAVE A COMPANY OF THAT NAME THEMSELVES - they could be sole traders, partnerships, or it could be a trading name.

Similarly, whilst you registering a name prevents another limited company from having an identical name, it does not stop the name being used as a trading or business name and you could have to defend your rights to the name in the future.

To find our more about special rules for names please click here to see Companies House's guidance notes.

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6. What is the difference between directors, company secretary and shareholders?

In most small companies in the U.K. the directors and shareholders are the same people. However, legally it is important to be aware of the differences. Basically, the directors run the company, and the shareholders own it. The company secretary is responsible for ensuring that all the statutory procedures relating to the running of the company are carried out correctly.

When thinking about these different roles it is worth bearing in mind that the legislation is equally applicable to ICI as it is to a small corner shop. It is often useful to think of them in the context of ICI and then work back to your own business. The shareholders ultimately own the company, but that they do not have any day-to-day control over what the directors do.

The directors have a responsibility to the shareholders to, amongst other things, protect the companies assets and maximise profits; they must act in good faith in the best interests of the shareholders. In most small companies, however, the directors are also the shareholders; but they still have to "wear different hats" to, for instance, vote as a shareholder to decide whether they should be appointed as a director of the company, or to decide as a director whether a meeting of shareholders should be called.

Every private company must have a director and a secretary. A company need only have one director, although that person cannot also be secretary; if a company has two directors then one of them can be the company secretary too. There is no age limit for directors of a private limited companies, and the directors and secretary can live abroad; however, the company MUST have a registered office address where it is registered. A PLC must have a minimum of two directors and there is an age limit of 70 for directors.

An undischarged bankrupt or a person subject to a disqualification order cannot be a director or be concerned in the formation, promotion or management of a company. A secretary to a public company must be "suitably qualified", although in reality this means they must have had some relevant experience.

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7. What is a Registered Office?

Because a limited company is a separate legal entity it has to "live" somewhere. This is the official address for the business, where official documents and letters can be delivered. The registered office need not be where the company will carry out its business, but every company registered in the United Kingdom must have its registered office in the United Kingdom. It can be your home address.

The registered office address must be shown on the company's letterheading if it is different to the trading address.

 

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8. What are the "Memorandum & Articles of Association"?

These are the "rules and regulations" which form the legal basis for the conduct of a company both with third parties and amongst its own shareholders and directors.

The Memorandum is the "outside" rules of the Company - it states the name of the company, where the Registered Office is situated, the amount of the authorised share capital, etc.. It also states what the "objects" of the company are - our objects clause has been drafted in the widest possible form to allow the Company to carry on any business it desires.

The Articles are the "internal" rules of the Company, governing how directors, shareholders, etc. act. These are based upon standard rules, and have been drafted to be as flexible as possible.

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9. How is the company set up?

To enable us to form your company as quickly as we possibly can, the company is set up with our "nominees" as director, secretary and shareholders, and with the Registered Office at our address.

On the day the company is incorporated our nominees resign and transfer their shares to your choice of shareholders, and we file the relevant documentation to change the company's Registered Office to your choice of address.

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10. What do I have to disclose about the company?

One of the disadvantages of trading through a limited company is that you have to place information about your business on the public file at Companies House.The reason for this is that, as a sole trader or partnership people doing business with you know that they can collect their debts from your personal as well as business assets; with a company they do not have this luxury, and so they need to be in a position to know as much about the company as possible before they do business with it.

A limited company must show legibly on all business letters, written orders, invoices, receipts and written demands for payment the company's place of incorporation, registration number, full name (including the word "Limited), and the Registered Office address (this is normally the "small print" at the bottom of the letterheading). It is not necessary for directors names to be shown, but if they are then the names of ALL directors must be shown. This information must also be displayed in any premises where business is carried on and to which customers and suppliers have access.

The details of who the directors and secretary are has to be lodged at Companies House, and is available for public inspection. Each year an Annual Return has to be filed, giving an up-to-date "snapshot" of Directors, Secretary and shareholders at the return date.

Annual accounts also have to be filed, which are also available for public inspection. Smaller companies can file "abbreviated" accounts, which disclose more limited information - basically just a balance sheet plus supporting notes, allowing people with whom you wish to trade to look at the extent of your solvency, amount of assets owned, etc. without competitors being able to discover sensitive information about your profit margins etc.

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11. I have an Overseas Company, do I need a U.K. Company?

An overseas company may register with Companies House in the United Kingdom subject to certain conditions. The advantages of this are that the tax liability will be restricted to the net profits generated in the UK, and there is no statutory obligation to have audited accounts prepared.

However, many overseas companies prefer to operate branches through a separate U.K. limited company because of the protection it affords the parent company should the U.K. subsidiary run into difficulties.

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12. What will the annual running costs be?

As with any business, the company will need to prepare annual accounts and present these to the Inland Revenue. However, in addition the company will also need to file a copy of its accounts with Companies House.

For companies with a turnover (sales) below £1m per year no audit of the accounts by a qualified accountant is required unless the shareholders require one. For companies with turnovers below this limit an accountant is not a legal requirement, although as with any business we would always recommend that you seek advice from a suitably qualified accountant; they will prevent you from making costly errors and almost certainly reduce your tax charge. An audit is necessary for turnover above £1m per year.

An Annual Return also needs to be filed with Companies House once a year. The filing fee for this is £15.00.

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13. Do I have to trade immediately?

No. Your company can remain dormant (non-trading) for as long as you wish, subject to you filing dormant accounts with both the Inland Revenue and Companies House, and an Annual Return with Companies House.

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