A limited company is a structure you can choose for your business that separates your personal finances from your business operations. This separation means the company itself holds liability for its debts and financial responsibilities, not the individual owners or shareholders. After deducting Corporation Tax, the company's profits belong to it and can be distributed among its shareholders.
The majority of limited companies are "limited by shares," indicating ownership is divided among one or more shareholders, each with specific rights. For instance, Company Directors may require the approval of shareholders for significant business decisions.
Distinction from Sole Trader
A key difference between a limited company and a sole trader is the treatment of financial and legal liabilities. A limited company operates as an independent legal entity, thus safeguarding shareholders' personal finances against the company's debts. This is unlike the sole trader structure, where personal and business finances are intertwined, exposing personal assets to business liabilities.
Tax and Financial Obligations
If your limited company's annual revenue surpasses £85,000, VAT registration becomes necessary. Additionally, the company is obliged to:
- Keep accurate statutory accounts annually.
- Submit an annual return to Companies House.
- File a Company Tax Return with HMRC each year.
Directorial Duties
While directors can delegate certain tasks, such as accounting, they remain legally accountable for the company's records, financial health, and compliance with regulatory requirements. Responsibilities include:
- Completing an annual Self-Assessment tax return.
- Managing taxes and National Insurance contributions through the PAYE system, if drawing a salary from the company.
- Adhering to the company's articles of association.
- Maintaining accurate company records and reporting any changes.
- Disclosing any potential personal benefits from company transactions to other shareholders.
Opting for a limited company structure offers a blend of financial protection and professional credibility, making it an attractive choice for many entrepreneurs and business owners.
