Limited Companies - an introduction

Posted on 3rd January 2015 at 4:10pm by Carl Reader in Business

Although a limited company sounds daunting to those with no experience of running one, they are the most common choice of business vehicle for start ups. From a legal perspective, they are seen as being a separate legal entity from the owner(s), and as such can incur debt and own assets in their own right. They also can enter into contracts in their own right, as if they are a ‘person’.

A limited company is formed at Companies House, and would have it’s own unique company number and name. No other companies are allowed to use the name of an existing company, and there are also sensitive words that are protected from use. So for example, the Yummy Cake Shop as mentioned above would become:

Yummy Cake Shop Limited (or Ltd)

A private limited company is run by its directors, who may or may not be the same people as the shareholders (owners). Some companies are set up with the intention of being not-for-profit, and are known as companies limited by guarantee. More commonly for start-ups, the company is set up as a company limited by share capital. These companies are often formed for the tax advantages that arise from effective remuneration strategies, and also the commercial advantages of being seen to be a registered limited company.

Limited companies do however have two main disadvantages, in that firstly they are required to file details of their financial performance and their governance publicly, and secondly that there is a large administrative burden in the additional requirements of Companies House and the Companies Act.

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