WHAT IS A LIMITED COMPANY
A limited company is a legal entity with a separate identity from those who run it and is registered at Companies House.
WHAT IS LIMITED LIABILITY
A Private or Public Company must have a share capital and the liability of each shareholder or member is limited to the amount, if any, unpaid on their shares.
Example. You register a Private Limited Company to run a small building firm. You issue yourself with ten £1 shares which makes you the sole shareholder and owner of the Company. If you pay to your Company £10 for those shares, then your ‘Limited Liability’ has been satisfied. Provided that the business has failed for genuine commercial reasons, i.e the loss of a big contract, then you will have no personal liability to pay towards any of the Company’s outstanding debts. If however you don’t pay for your shares and the Company gets into trouble and is put into liquidation, then the liquidator will demand that you pay to him the £10 you still owe on your shares which will be put towards the Companies debts. Beware, if at the point of registration you agree to issue say 100,000 shares but don’t pay for them and the business fails, you could find yourself effectively personally liable for the Company’s debts as you will be liable to pay £100,000 to the liquidator.
A company limited by Guarantee does not have a share capital, instead the ‘Liability’ of each member is the fixed amount each member agrees to pay towards the Company’s debts in the event of liquidation. Their liability to pay extends for twelve months after they have ceased to be a member. The liability is usually just a nominal £1 or £5.
There are five types of Limited Company;
A Private Limited Company, which is by far the most common type used for small businesses of all kinds and often now used as a vehicle through which, say a computer consultant, will enter into a contract with an employer.
A Public Limited Company, which is used for larger ventures and are able to raise capital from selling their shares to the public.
A Private Company Limited by Guarantee, which is used for organisations where the principle aim is to provide a beneficial service to either a specific group of people such as a club or society or to the public in the form of a Charity or a Community Interest Company.
A Private Unlimited Company, a rarely used form of registration that has the disadvantage of giving no limited liability protection so is only safe to use where there is absolutely no risk.
A Limited Liability Partnership, or LLP, is a form of legal business entity with limited liability for its members, which is established with a view to profit. The main difference is that an LLP has the organisational flexibility of a partnership and is taxed as a partnership. In other respects it is very similar to a private limited company.
WHAT ARE THE MINIMUM REQUIREMENTS?
A Private Limited Company can be registered by one person who is both the Director and Shareholder, there is no need for a Secretary. If the company only has one Director then that person must be a real person, not a corporate body or a partnership. There must be at least one share issued which usually has a par value of £1 but can be one penny or any other value. The company must have a Registered Office address which must be located in the country of registration, i.e England and Wales, Scotland or Northern Ireland. The Registered Office does not have to be the place of business.
A Public Limited Company must have at least two Directors, one of which must be a real person, and a Secretary. It must have at least one shareholder and an issued share capital of at least £50,000 before it can commence trading. (The company can be registered with just one issued share for the purpose of registration). The Registered Office requirements are the same as a Private Limited Company.
A Private Company Limited by Guarantee has the same requirements as a Private Limited Company but must have at least one Member instead of a Shareholder. This type of company is intended to operate as a committee of interested Members and delegate its day to day operations to a committee of Directors or Trustees as they are also known. It is common practice to appoint a Secretary to undertake administrative tasks.
A Private Unlimited Company has the same requirements as a Private Limited Company but legal advice should be sort before registration.
A Limited Liability Partnership, or LLP must have at least two Partners or Members, neither of which need be real persons. They must at all times have at least two of the Partners or Members registered as Designated Members. A Designated Member is responsible for:
- appointing an auditor (if one is needed);
- signing the accounts on behalf of the members;
- delivering the accounts to Companies House;
- notifying Companies House of any membership changes or change to the registered office address or name of the LLP;
- preparing, signing and delivering the annual return to Companies House; and
- acting on behalf of the LLP if it is wound up and dissolved.
They are also accountable in law for failing to carry out these legal responsibilities. The Registered Office requirements are the same as a Private Limited Company.