What is a Private Limited Company?

In this article we’re looking at a simple, straightforward definition of a limited company, as well as how to form one and what different types of ownership there are.
Help Centre > What is a Private Limited Company?

What is a private limited company?

Before you set up a limited company, it's important to be clear on exactly what it involves legally and financially. Let's firstly look at what it means to be the owner of a limited company. A limited company has its own legal identity and its finances are separate from yours. Any profits you make after tax belong to the company and as a shareholder you will receive a dividend. If you are the company’s sole owner, this will be all the company profits.

 

A private limited company pays Corporation Tax, which may protect you from having to pay a higher rate of income. There are also more deductible costs and allowances. You can claim for things like equipment, travel and utilities, for example.

 

Once your business is registered with Companies House, your company name can’t be used by anyone else. This protects your brand.

 

If you get into debt, as a private limited company owner you are not personally responsible: the company is a separate identity.

 

There are two types of private limited company, those limited by shares and those limited by guarantee. Let’s look at these in some more detail.

 

A company limited by shares

A company limited by shares can be owned solely by you, or with other people, but you need to have at least one shareholder. Any profits the company makes are divided amongst the shareholders, dependent on how many shares each person owns. If you own your company alone and you are the only shareholder, then you’ll receive 100% of the profits. The price of the shares can be as low as £1.

 

Your company will also need to appoint a director. You can take on this role as well as being a shareholder. If the company goes into liquidation, neither a director or a shareholder can be held responsible for any of the company’s debt.

 

However, if your company runs into financial trouble and you continue to trade even though you know the company can’t pay its debts, as a director, you could be fined and prosecuted. You will also be banned from being a company director for up to 15 years. You won’t be held responsible if you can show that you did everything you could to make sure your creditors were paid.

 

Benefits of a company limited by shares

A company limited by shares is ideal for a small business. This is because of the security it can offer by being a separate identity and protecting your personal finances. It also has favourable tax advantages and if you are the main shareholder and the director, you have complete control of the company.

 

A company limited by guarantee

This limited company is also a separate legal entity, but it doesn’t have any shareholders. Instead it has guarantors or members. A guarantor or member invests a fixed amount into the company and like a company with shares, they have limited liability, so they are not personally responsible for any company debts.

 

A lot of limited by guarantee companies are set up by charities or non-profit organisations because the company does not make money to benefit shareholders, only for charitable causes.

 

How a limited company is formed

You can form your company alone, or with other people. Beaumont Formations, as a Companies House approved formation agent, can help you to open a ready-made company. If you want to form a new company you will need to be registered at Companies House. Beaumont Formations can do this for you, if you require guidance to take these important steps.

 

Companies House will need a memorandum of association, together with articles of association and an application to register a company, which is form IN01. This form contains your company’s registered office address and the names and addresses of the directors and your company secretary if you decide to appoint one.

 

Your registered office

Your registered office address is the address you choose to have your official documents sent to, including any from Companies House. If you decide to change your registered office after you have incorporated your company, you have a legal requirement to inform Companies House using form AD01. For safety and privacy reasons, it’s never advisable to use your home address as your registered office. Using a reliable Registered Agent is the safest way to set up your company.

 

Directors

A private company needs to have at least one director. You can own your company and be the director and shareholder. Private companies don’t need a secretary, but you can appoint one if you want to. A director must be 16 years of age or over.

 

Each person who is subscribing to the company must sign the form. If you are the only director, then it will only be you that signs the form. By doing so, you are acknowledging your acceptance of the responsibility and duties that are attached to being a company director.

 

Companies House

Once you have all the documents filled in and signed, they must be sent to Companies House. Here they check your documents. For example, they need to make sure that your name does not appear on the register of disqualified directors. Once Companies House is satisfied that all the documentation is correct, they will register your company – this is called incorporation. You will be issued with a Certificate of Incorporation and a notice is put into The Gazette, which is the UK’s public record.   

 

Beaumont Formations

And there you have it – it’s that easy to form your own limited company. If you are considering setting up a business, our experts have you covered. Have a browse of our company formation package for details of what’s included when you form with us, or to keep gathering advice on running a business, look around the help centre.

This article is intended for general information purposes only and does not constitute legal or professional advice. Advice should be sought before proceeding with any transaction.