Limited company (Ltd)

2020 / FEBRUARY 20

Usually, this company is limited by shares meaning that it is legally separated from the shareholders/directors who run the company and that the shareholders’ liability is limited to the amount of the share capital.

The share capital is fixed freely and does not have to be paid unless the company has to shut down.

A limited company must have at least one shareholder and one director who can be different people.
Shareholders can be either individuals or companies. Directors must be individuals and at least 16.
Company secretaries can also be appointed but it’s not mandatory.

Directors must take decisions according to the company’s rules stated in its articles of association. They’re responsible for keeping the company records, report changes, filing the accounts and Company tax returns as well as paying Corporation tax.
They can be fined, prosecuted or disqualified if they do not meet their responsibilities.

Directors can be employees of the company and get a salary with a payslip. In that case, they’re applied the same social contributions as other employees except for pension (NI contributions and income tax via PAYE).
They can also be paid with dividends. These are not subject to social contributions but to income tax only with special rules.

A Limited company is subject to Corporation tax (CT) on its profits, and director’s wages are deductible from those profits.
Dividends are not deductible from the company’s profits and thus subject to CT first. From the directors’ perspective, dividends are then subject to income tax via a self-assessment return. They benefit from an annual exemption called ‘dividend allowance’ (£2,000 for tax year 2019/20) and above this allowance, income tax should be paid at special rates depending on the directors’ income tax band :

• Basic rate taxpayer: 7.5%
• Higher rate taxpayer: 32.5%
• Additional rate taxpayer: 38.1%

At least once a year, shareholders gather during an Annual General Meeting in order to approve the accounts. Also, the director must complete a confirmation statement with Companies House every year stating if they were changes with the company (change of directors, shareholders, address…).

They must appoint an auditor unless the Limited company qualifies for an audit exemption if it has at least 2 of the following:

• Annual turnover of no more than £6.5 million
• Assets worth no more than £3.26 million
• 50 or fewer employees on average

In order to incorporate a Limited company in the UK, you’ll be required to have:

• A name for the company: it would need to be approved by Companies House so you should check if it’s not an existing trade mark already
• A director: you will need to provide their details as well as a service address which can be the company’s registered address. This address will be public.
• A UK registered address for the company (directors and shareholders can live abroad)
• The articles of association and memorandum of association
• A shareholder: you will need to provide their details and the number of shares they own
• Identification of the people with significant control (PSC)
• SIC code relating to business activities
• Share capital amount and repartition between shareholders

The following steps must be followed in order to incorporate your Limited company:

1. Write the memorandum and articles of association
2. Register the company with Companies House
3. Register the company with HMRC for Corporation tax, VAT, PAYE… if necessary

Incorporation of a Limited company with Companies House takes up to 2 working days.