We’ve all heard “limited company” in conversations but do you have a clue what it refers to? From a legal standpoint incorporation as an LLC has numerous advantages – some of that may be more apparent than others. In this brief and straightforward guide, we take you through the basics of a limited company and the major benefits of establishing it within the U.K.
What’s a Limited Company?
Before we look at the benefits that come with incorporating an limited business within the U.K. It is important to know what exactly an unincorporated company is.
The term “limited company” refers to a type of company limited by shares or limited by guarantee. Limited companies have their own legal persona, meaning that it is able to contract on its own and is able to exercise its own legal rights and obligations. The company’s liability is not usually extended to the founders of the company.
Many businesses are formed as an organization limited by shares with the intention of earning profits and to:
1. It should have a distinct legal identity for those who run it
Also the individuals who manage the business aren’t personally accountable for any financial or legal concerns that arise out of the operation of their business.
2. Are financially distinct from those who manage the company.
3. Have shareholders and shares been transferred to any other company
4. You can keep any earnings after taxes within the company that they can be invested in the business or distribute it to shareholders as dividends
Limited by guarantee companies often tend to be considered ‘not-for profit’ (and often registered as charities) and, in turn:
1. Create a legal persona distinct apart from the individuals who run it (as previously)
2. Separate finances from the people who manage the company.
3. Members and an amount that they will guarantee the members accept to be responsible for towards the business (for instance PS1) that is the amount they are liable to the company
4. Return the profits to the charity or business (if it’s legally recognized as one)
How do I become A Limited Company?
The first step is to verify that the incorporation of an LLC is the most suitable option for you. There are a variety of business structures with various benefits and implications based on your particular company and the circumstances. It’s important to remember that the business structure can have financial and tax consequences, so it’s not an option to take lightly. To learn more about the various kinds of companies, read our guide.
After you’ve decided to go ahead with UK company formation it is necessary to:
Choose a name to represent your company (which isn’t registered yet and is legal and doesn’t violate the rights of other people)
Designate directors and, should you choose you, a secretary for the company.
Determine who your members or shareholders will be.
Make sure you have the right documents to explain the way your business will be run.
Make sure you are aware of your duties as an administrator
You will then be eligible to register your company through Companies House.
Once we’ve understood the context and process involved, let’s take an look at the advantages of establishing limited companies within the U.K.
1. It’s simple and easy
One of the major advantages of incorporation as a limited company can be that it’s simple process with numerous advantages. It’s perhaps one of the main reasons to choose to register as a limited corporation. The intention is to operate this way in order to promote entrepreneurial spirit.
2. The Company is a legal entity with its own identity.
If you choose to incorporate as an LLC the business will gain its own legal identity. This means you, for instance, your business will be able to sign agreements with third party. Furthermore the next point it reduces individuals’ personal responsibility those who are responsible for managing the business and the founders.
3. Personal liability limited to a certain extent
One of the greatest advantages of incorporating a limited business within the U.K. is the lowered personal liability of the individuals in charge of the company. That means that even in the event of problems with its finances or the law and personal assets of the directors accountable for the business are protected provided that directors have been responsible when running the business. This is due to the fact that, as we have already mentioned that a limited company is a distinct legal entity.
4. Potential tax benefits
Based on your particular situation, more often than not, registering limited companies can offer tax advantages. Limited corporations pay corporation tax, rather that income taxes. This gives you more choices and options in planning your tax strategy.
5. Possibility to issue shares in order to raise capital
As a limited-company, you’ll have greater choices when it comes to getting capital for your business. This is because you’re able to sell shares to investors who are new. Additionally, registering as a limited company gives you the possibility of borrowing from certain loans that are made for companies that are incorporated. It could also be an exit strategy for entrepreneurs of a business that has been registered as a corporation.
6. Increased credibility and credibility for a company
If there’s no differences in how your business is run, registering as limited company can be a fantastic option to increase your company’s’s credibility and image. One of the main reasons for the perception gap is that limited companies are more scrutinized in comparison to sole-traders for instance. This is due to the need to adhere to more formal procedures.
7. Pension benefits
A limited company’s incorporation allows you to invest your pre-tax earnings into a pension scheme for the company should you choose to.
FAQs on Limited Companies
1. It is it worthwhile to set up an LLC UK?
It all depends on your personal situation and the way your company’s image is. If the above benefits are beneficial to you and your business it might be worth starting a limited-company within the U.K.
2. What are the advantages from a company limited by shares UK?
As we’ve learned the advantages to limited businesses operating in the U.K. Of particular note is the fact that personal liability is not as high and the differences in taxation.
3. Does anyone have the ability to create the company as a Limited Company UK?
It is possible for anyone to set an LLC with the U.K. But it is necessary to be a minumum of sixteen years of age, you are not previously exempt from being a director. You also must not be a bankrupt who has not been discharged.
4. What are the drawbacks of an unincorporated company?
The process of registering as a limited company is accompanied by additional administrative obligations and accounting requirements will likely to grow. This could mean a rise in expenses.
If you’re planning to incorporate into a company the option of a limited company may be the right choice. With all the benefits we’ve discussed this is a viable choice. However, as we’ve said the choice of your business structure will impact your financial and tax situation. It’s best to seek out professional advice when making this decision.
If you’ve decided on your mind but need assistance in incorporating your business or need a second opinion, our top-quality business lawyers are available to assist. With at minimum five years experience in the field, our lawyers possess the knowledge needed to help you navigate through the process efficiently and quickly. Contact us today to start the process.
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