What are Private Limited Companies?
One of the most popular types of incorporated companies in the UK are private limited companies. These days you can even form one online using a formation service such as the one provided by Your Company Formations. If you prefer to speak with a human, you can call one of our professional company formation experts who will walk you step-by-step through the simple process. Call us on 0207 689 7888.
To set up a private limited company you do not need a minimum amount of capital, neither do you need to have hundreds of employees working for you. In fact many of the thousands of private companies formed in the UK are very small, with an initial share capital of less than £100. Small and medium sized businesses with a simple set up are also allowed to submit modified accounts to Companies House instead of full accounts.
Ideal set-up for Sole Traders
Forming a private limited company is a good way for sole traders to protect themselves against trading losses, especially when working within an unstable and ever-changing economic climate. What this means for a one-person operation is that their company will be responsible for its own debts and trading losses rather than the individual. The individual person's own assets will remain protected from business creditors, and their liability will be limited to their share amount.
In other words, operating as a sole trader will mean you are held personally liable for your business borrowings to your creditors if your business fails. You will also be held personally liable for any claims that are not covered by your insurance. This can prove to be very costly indeed if your business should fail!
If you chose instead to set up a private limited company, your company can then offset its trading losses against its other income, but not against your income as an individual. Your personal assets will remain protected.
Being a private limited company will also mean that your business profits are liable for corporation tax at the single rate, currently 20%. However, this is a far better rate than what is paid by an individual operating as a sole trader on the higher rate of tax at 40% when earning from £32,000 to £150,000 (2016/17), or if he or she is part of a partnership.
Is it just for SMEs only?
There are obvious benefits for the sole trader or small and medium sized business to form this type of company, but that doesn't mean that large firms couldn't benefit too. Incorporation is the only way to protect your company name against someone else registering it. A great way to beat your competition is to snap up all the different variants of your company name to prevent anyone else from trading under the same of a similar name to your own.
Once registered, your company does not actually need to start trading until you are ready. Your private limited company can remain dormant for as long as you want it to, although you will still need to submit annual accounts for the company. But you only need to submit your returns in the simplified form, so easier to deal with and less to worry about.
As a private limited company, you are not allowed to sell shares to the public, but should your business grow to a level where you would want to sell shares, or you needed to access significant funding through investment to allow it to grow, then you have the option to convert your business into a Public Limited Company. This will enable you to offer shares to the public, and also give you the choice to have shares traded on a Stock Exchange.
What are the advantages of a Private Limited Company?
A legal entity in its own right, a private limited company enables you to keep your company finances separate from your own personal finances.
Personal Liability Protection: Your personal assets are not put at risk should your business fail. Your liability as a shareholder is limited to the amount unpaid of the shares held by you.
Forming a company will add to your business creditability. This makes it easier to secure finance for your business with less personal risk.
Boosting customer confidence: You business will be perceived as more professional and reputable, so building trust with your customers and commercial partners.
Indefinite lifespan: Private limited companies do not cease trading if a director or shareholder dies.
Lower rate of tax liabilities: As a private limited company you can gain tax benefits.
Low cost way of protecting a business name.
What you need to have to run a Private Limited Company
You will need a set of company accounts to maintain accurate book keeping and accounts records. Your financial statements must be submitted to HMRC within 9 months of your financial year end.
Every private limited company must have at least one company director. You are allowed to have directors from other corporate bodies, but a minimum of one director must be a dedicated named person.
What do I need to give to Your Company Formations
To have your business officially formed into a private limited company, we need to have your company name. We do not require any documents from you when you form a company online with us, however a Limited company does require a registered office address, director and a shareholder holding at least one share.
You will have a few things to bear in mind when deciding on your company name. For instance, Companies House will refuse to register your company if your company name is deemed as offensive in nature, or implies you have a connection with a government body or public authority where none exists.
Your company name will also be rejected if it is the same as another already registered on the index of company names. You may not use a name that is perceived to be deliberately misleading, or uses confusing signs, symbols or punctuation.
Your company registered office must be in the country of incorporation, i.e. England & Wales, Wales or Scotland. Your business letterheads, paperwork and company website should include your registered address, as well as any other correspondence or trading address.