Over 1.3 million businesses currently operate as private limited companies in the UK, compared to nearly 3 million sole traders, and around 450,000 partnerships.
What is a private limited company?
- Companies House, the registrar of companies, oversees the incorporation and running of all limited companies in the UK.
- The liability of company directors is limited, unlike the sole trader business structure.
- A limited company is a distinct legal entity from its shareholders and directors.
- The financial affairs of a limited company, and that of its directors is completely separate, unlike the sole trader route.
- Corporation tax is charged on the profits of limited companies. Companies must submit a company annual return each year to Companies House and HMRC.
- Company directors must fill in an annual self assessment form to work out their income tax liabilities for the previous tax year.
- If your turnover is greater than £77,000 over a 12 month period (2012/13 tax year), you must register your company for Value Added Tax
- All companies must fill in an Annual Return (Form AR01) and submit it to Companies House each year. This provides a snapshot of your company affairs at a moment in time.
- Company directors have a number of legal and financial responsibilities to attend to, and more administration to deal with than self employed people.
- The vast majority of limited company directors appoint accountants to deal with their tax affairs, and to deal with HMRC and Companies House.
- A limited company can be formed with just a sole director. Since the implementation of the Companies Act 2006, the company secretary is an optional appointment.
- In some cases, having a limited company can provide a ‘professional’ appearance for your business, and it may be a mandatory requirement in some industries.
- Private limited companies cannot offer their shares for sale on the stockmarket – although public limited companies (PLCs) can.
- You can read more about the steps involved in the limited company incorporation process here, and also a good legal overview of all the main business structures.
- You can set up a limited company right away with our long-term company formations partner, Duport.
- In order to incorporate a private limited company, you will need to submit three documents to Companies House – application Form IN01, and the Memorandum and Articles of Association.
- If you are an IT contractor or freelancer, you can find a wealth of further information on Contract Eye.
Before you start
When making the choice of business structure, you should always consult a professional, as each business has different needs.
There is no ‘right’ or ‘wrong’ business structure to use -it all depends on what you do, your financial situation, the industry you are in, and how large your operation is likely to become.