A limited company is different from a sole trader or a partnership because it limits the risk exposure of those involved in the company, such as the owners and investors. There are different sorts of limited companies, each with advantages and disadvantages.
Features of a Limited Company
The three main features of a limited company are that it is a business entity registered as a legal person, that the business is separate from its owners, and that the company has accountability for its actions, financial obligations and debts.
There are three types of limited companies:
Limited Liability Company: can be public (PLC) with its shares available to the public on the London Stock Exchange or private (LTD) which sells shares privately to individuals.
Company Limited by Guarantee: owned by guarantors and whose liability is limited to the value of the guarantee.
Limited Liability Partnership: partners own the business operation with the liability limited to their investment.
Setting Up a Limited Company
To set up a limited company, start by considering the name, choosing the directors and company secretary, deciding on shareholders or guarantors, and registering your company with Companies House. Visit here more information on how to set up a limited company.
It is important that you have documents prepared that show how the company will be run, and are clear on what records to keep.
There can be some complexities in running a limited company and this means that it is sensible to take legal advice. If the company is buying property, you may need a directors personal guarantee when making the purchase. Getting assistance from a legal firm with experience in this such as Parachute Law can help this process run more smoothly.
Advantages and Disadvantages
As well as the limited liability, there are tax advantages to a limited company, such as the chance to pay yourself dividends that will help you avoid higher tax rates.
However, running a limited company is more complex than being a sole trader or a partnership and your finances will be a matter of public record.