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What is a private limited company?

October 22, 2012

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 £79,000 over a 12 month period (2013/14 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 find out more about setting up a limited company right away with our long-term company formations partner, here.
  • In order to incorporate a private limited company, you will need to submit Application Form IN01, and the Memorandum and Articles of Association to Companies House.

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.