A Limited Company is a company that is registered at Companies House and governed by its own Articles of Association (these set out the rules company officers must follow when running their companies). In addition a Limited Company must observe and operate within the Companies Act 2006.
Upon registration, a Limited Company acquires its own corporate personality, hence it becomes a legal entity/person with its own legal rights and obligations. This separates the Limited Company from its officers and members. As a result, the company can acquire assets and properties of its own, become an employer, engage in contracts with others, be considered a criminal and has the ability to sue or be sued.
Limited Companies are considered Limited either by Shares or by Guarantee, which essentially means that the liability of the members is limited to their investment or guarantee to the company.
A company Limited by Guarantee does not have share capital, but rather the members have agreed to pay a fixed amount should the company go into liquidation. Companies often set up in this manner include Charitable Organisations and Financial Conduct Authorities.
On the other hand, a company limited by Shares is a company whose members’ liability is limited to the value initially invested in the shares or to a minimum of £100.00.
Most companies set up in the UK and those who are our clients are companies Limited by Shares and, as a result, we will focus on this particular set up throughout this guide.
A Limited Company must be made up of both Shareholders (members) and Directors (officers). These can be the same person or people. The company may also choose to have a Company Secretary (officer) though this is no longer a mandatory requirement.
The Directors have a great burden of responsibilities on their shoulders as they must at all times operate both within the law as well as in the best interests of the company and shareholders. Some of the main responsibilities of the Directors are as follows but the list is by no means exhaustive:-
- try to make the company a success, using their skills, experience and judgement.
- follow the company’s rules, shown in the Articles of Association.
- make decisions for the benefit of the company and not themselves.
- tell shareholders if they might personally benefit from a transaction the company makes.
- keep company records and report changes to Companies House and HM Revenue and Customs (HMRC), if there is no Company Secretary.
- make sure the company’s accounts are a ‘true and fair view’ of the business finances.
- register for Self-Assessment and send a personal Self-Assessment tax return every year.
It is normal that Directors hire other people to manage some of the day-to-day activities on behalf of themselves and the company, such as an accountant. However, the Directors are ultimately legally responsible for their company’s records, accounts and performance.
Shareholders can be one or more person, company or other institution that owns at least one share of the company’s shareholding. The shareholders are considered the company’s owners since they have the potential to profit (in the forms of Dividends) if the company performs well and, likewise, lose if the company performs poorly.
Limited Company Taxation Overview
Once a company has been incorporated at Companies House, HM Revenue and Customs (HMRC) is instantly notified and, in turn, sends the company by post a 10-digit Unique Tax Reference Number (aka UTR). This identifies the company to on their systems for communication and tax purposes.
The main forms of company tax that a Limited Company could come across and be responsible for are as follows:-
- Corporation Tax – a tax on profits made by the company
- VAT – a tax on goods and services provided in the UK
- Income Tax – a tax on employees’ salary or wages.
- Employee’s National Insurance – a tax on an employee’s salary or wages.
- Employer’s National Insurance – a tax on the employer based on an employee’s salary or wages.
The tax rates and allowances for the 2015-16 tax year are available here.
Of the above taxes the only one that the company is mandated to register, submit returns and pay is the Corporation Tax. VAT is required when the company’s sales are over the VAT Registration threshold (currently £82,000 per year) although the company can register voluntarily at any time. Employment taxes come into effect when the company has staff with employment contracts in place.
Limited Company Responsibilities to Companies House
Aside from its tax submission and payment obligations to the HMRC, the company must also fulfil its responsibilities to Companies House in the form of an Annual Return and the annual preparation and submission of statutory accounts.
At CooperFaure, we have helped our clients achieve their ambitions by making this process as painless as possible. If you would like to discuss your circumstances or have any questions, please contact firstname.lastname@example.org to arrange an initial free consultation.