What is a limited company?

What is a limited company?

A limited company is a business that is seen as being completely separate from the owner (or owners).

So, unlike a sole trader where personal assets can be at risk should something go wrong with your business, a limited company contractor won’t need to worry about this.

Benefits of becoming a limited company contractor

Although the limited route does involve more responsibility, many people choose this option because it is the most tax efficient way of contracting.

Other benefits of working as a limited company contractor include:

• Being able to claim back on a much wider range of expenses.
• Having more tax benefits.
• Having complete control over the direction of your business.
• Your business is seen as a completely separate entity to you with its own identity and bank account; so, there isn’t as much risk as some people may think – if your business were to face any genuine financial difficulty, you wouldn’t be at risk of losing your personal possessions and assets.

Read our Moving from Self Employed to Limited page for more information on the pros and cons of setting up your own company.

Setting up a limited company

Setting up your own limited company is a simple and easy process:

Firstly, you need to come up with a name for your company. It’s worth thinking of names that are related to your industry or skillset so that people will recognise what your business offers, but there are also other factors to take into consideration.

You have to make sure that the name isn’t already taken (you’ll need to look on the Companies House website to find this out), ensure the name isn’t offensive in any way and the majority of private limited companies must end in either ‘Limited’ or ‘Ltd’.

Next, you need to decide on roles – a company must have at least one director and they will be legally responsible for running the company, making sure company accounts and reports are properly prepared and the company’s money is used wisely.

A company secretary is often there to help with some of the director’s responsibilities; however, you don’t have to appoint one.

You will have to have at least one shareholder within the company (who can also be a director) and if there is just one, they will own 100% of the company.

There is no maximum number of shareholders and the price of an individual share can be any value, but each person will need to be paid their shares in full if the company has to shut down.

Then, you’ll need to register your company through Companies House.

You’ll need the company’s name and address, as well as the names and addresses of directors, company security and shareholders.

It’ll take around 48 to fully set up and comes with a small fee.

When registering, you’ll need a ‘memorandum of association’, which is a legal statement signed by all shareholders or guarantors agreeing to form the company, plus an ‘articles of association’ – these are written rules about running the company agreed by the shareholders or guarantors, directors and the company secretary.

We hope you found this page helpful. If you’d like to sign up or need any further information, please give us a call on 01442 795 100 or you can email jaime.thorpe@dolanaccountancy.com. There’s also the option to contact us via live chat.