A type of business structure that is formed with the intention of making a profit for the benefit of its owner and is the most popular company structure in the UK. It is legally different from its owner(s), has its own legal rights, and is responsible for its own affairs, finances, and liabilities because it has been incorporated at Companies House as a separate legal entity.
Shareholders and director
This type of business is owned by one or more shareholders, and managed by one or more directors. Shareholders and directors can be the same person. Each shareholder must hold a minimum of one share of the business. These shareholdings represent the relative ownership, control, and profit entitlements of each shareholder as well as the level of their personal liability in the event that the company is unable to pay its debts. You can form a private company limited by shares on your own or with other people.
Profit-making businesses of all sizes, from small startups to large corporations, are suited for private companies limited by shares. It offers a more advantageous tax regime than the sole trader, allowing you to pay less personal tax and keep more of the earnings. This is due to the fact that the company only pays 19% Corporation Tax on all taxable income, shareholders receive dividend payments from the remaining earnings, and directors are paid salaries through PAYE.
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How long does it take to set up?
If you want to invest money in your company by keeping profits, a company limited by shares is also the ideal option. It will not be liable to any additional tax unless distributed as a salary or dividends after it has paid Corporation Tax (and VAT, if applicable) on its taxable trading income.
Also read: Steps for UK Company Formation for Non-Residents
Limited liability protection
This type of company structure offers lower financial risk to shareholders in addition to tax benefits as the company itself is accountable for its own liabilities as a separate legal entity. In the case of insolvency or being sued, the financial liability of business shareholders is often restricted to the amount they paid or agreed to pay for their company shares, which is often just £1.
You will have a stronger competitive advantage than if you were just a sole trader because of the additional status that comes with operating as a limited by shares company. A limited company structure will give you and your company professional credibility because it is required to disclose corporate information on the public register at Companies House. This will help you to develop trust with your clients, enhance your reputation, and give you access to customers who only work with incorporated businesses.