Businesses must register with Companies House to set up a private limited company, also known as “incorporation”. A business needs a:

  • Company name
  • Company address
  • One director and one shareholder, at least
  • A memorandum of association or agreement of all initial shareholders
  • Statement of capital or details of company share and rights
  • Article of association or rules of running the company
  • Details of people with authority
  • SIC code or industry classification
Setting up a Limited Company - How Much Does it Cost

A business can register online with Companies House if the company is limited by shares and uses model articles or articles of association. Also, the business must register for corporation tax within 3 months from starting the business activities. Once a company is registered, the business will get a “Certificate of Incorporation”. This certificate verifies that the company legally exists, and has the company number and formation date.

Types of company

  • Private company limited by shares: Companies having a share capital and where the liability of each member is limited to the amount paid on shares they hold. A private company does not have the right to present its shares for sale to the general public
  • Private company limited by guarantee: Here the members do not make any contribution to the capital during its lifetime and their liability is restricted to how much each member has agreed to contribute to the company’s assets
  • Private unlimited company. These companies may or may not have a share capital and are not limited to members’ liability
  • Public limited company: These companies have a share capital and the liability of each member of the company is limited to the amount unpaid on the shares

Types of limited company

The most usual type of set up for small businesses in the United Kingdom, who cannot offer shares to public, but can have multiple shareholders, is Private Limited Companies.
As stated, each limited company must have no less than one director. According to the Companies Act 2006, companies no longer need to have a company secretary, however, the business may appoint one, if they wish too. A public limited company (PLC), unlike Limited Liability Company, is permitted to put forward their shares to the public to raise funds. A PLC needs to have at least 2 directors for managing the business activities, and a company secretary.

Minimum number of officers a company can have

Private companies must appoint a minimum of one director whereas, a public company must have a minimum of two directors and one qualified company secretary. All the company officers have important responsibilities. Usually, the members appoint the company director who will run the business on their behalf. Few restrictions are: the person should not have been disqualified as a company director, they should not have been declared bankrupt, and should be atleast 16 years of age.


KEY ASPECTS OF A LIMITED COMPANY

Limited Company (shareholder / director)
The business is a separate legal entity from the owner / shareholder of the business

In case of a legal dispute the company will be sued. In the United Kingdom, it is very rare that somebody can sue a director for the firm’s default. Exceptional scenarios when a director may be held accountable are:

  • in general law, when the director is responsible for a fraud
  • where the company director(s) has committed some specific offence such as corporate manslaughter
  • in tax of tax evasion or any other taxation related issue

Employment status:

  • A director is an office holder
  • A company’s officers are treated as employees for Income Tax and National Insurance purposes

Tax on profits:

  • In this case, the company is liable to pays corporation tax on the profits earned
  • Employees and other office members are subject to PAYE and NI
  • If IR35 applies, the company is required to deduct PAYE and NI

Losses:

  • A limited company can offset its loss with other incomes, but not against the director’s income

Extracting profits:

  • Directors are taxed on any income taken out from the company. If it is a distribution it is taxed as a dividend
  • Most employee benefits are taxable

Borrowing:
A director can borrow money from the company, under certain limits laid down under Companies Act 2006:

  • The company is liable to pay 25% as tax charge, if amount is borrowed from the company and is not repaid within nine months
  • After 5 April 2016, the charge increases to 32.5% for loans

Pension:

  • Schemes from the company can be more liberal, in terms of reimbursement and benefits as compared to Personal Pension

Insolvency:

  • In case a company fails, a director is liable to the extent of the amount unpaid on the shares unless a director has made a personal guarantee for borrowing
  • A director can be held accountable if operations continue even when the company is insolvent. This can result into personal bankruptcy

Selling the business:
There is a double tax charge on shareholders, when the business or assets are sold. The company pays corporation tax

General expenses:

  • A company obtains tax relief for its expenses if they are incurred entirely for the reason of trade
  • Private expenses, by the director, are treated as earnings 

Cars and fuel:

  • Irrespective of any private use by employees, the company obtains full capital allowances on cars
  • Cars may be expensive as benefits in kind
  • Reimbursement using HMRC mileage rates for self owned

Mobile phones:

  • Only one per household and mobile phones can be made available if the contract is in the company’s name, tax free

Charging rent for use of home:

  • A director can set up a license with the company to rent a space. Doing so will allow the director to recharge a share of mortgage interest

ABOUT DNS ACCOUNTANTS

DNS Accountants is a skillful team of accounting and taxation professionals that helps clients with services ranging from setting up a limited company to taxation and accounting services. The firm helps owner managed small business and private individuals across the United Kingdom. DNS is an acknowledged firm of ACA’s or Chartered Accountants (CA) and the firm takes pride in saying that we are very helpful to our clients & deliver unmatched customer service and constantly help clients to manage their wealth. The firm’s learned team focuses on helping sole traders with business registration, tax filings and other services such as self-assessment, payroll management and bookkeeping. At DNS, we are constantly in touch with our clients and offer

  • FIXED price service
  • Consistent and transparent service
  • Certainty on tax base and taxation advisory

Other services
DNS Accountants offers taxation & accounting services to owner managed businesses and freelancers / contractors. For business owners and freelancers / contractors, it is difficult to keep pace with the ever changing government regulations and rules. Our expert team of chartered accountants and taxation professionals help clients in services ranging from bookkeeping to payroll to tax planning, and filing tax returns. DNS Accountants help clients focus on maximizing their wealth. For more information, please visit www.dnsassociates.co.uk or connect with us on Facebook, LinkedIn, and Twitter.


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