Business Structures for Start-ups: Limited Company

The business structure is the starting point for all founders and depending on the type you choose, will bring different obligations on accounting and tax, among other things. 

In this blog, we will briefly talk about a Limited Company, its legal requirements and the processes needed to register your start-up as one.

How does it work

A limited company is considered a legal entity in its own right and is separate from its owners. This allows founders to keep their assets and finances separate from their business. 

There are two types of Limited Companies: limited by shares and limited by guarantee. 

Limited by shares

Limited by shares companies are usually businesses that make a profit. 

This means the company:

• is legally separate from the people who run it
• has separate finances from your personal ones
• has shares and shareholders
• can keep any profits it makes after paying tax

Limited by guarantee

Limited by guarantee companies are usually ‘not for profit’. This means the company:

• is legally separate from the people who run it
• has separate finances from your personal ones
• has guarantors and a ‘guaranteed amount’
• invests profits it makes back into the company

Advantages & Disadvantages

The key advantage of a Limited Company is that owners are subject to limited liability, meaning creditors can only seek payment from the actual company and not its owners. That increases customers in the company and makes it easier to seek fundraising.

The disadvantages of these companies mainly involve the amount of paperwork and bureaucracy as well as being on public display. There is also a possibility of further taxation on capital gains if appreciating assets are withdrawn from the company at a later date.

How to Register a Limited Company

To register your company as a Limited Company, you must: 

• register with Companies House, obtain a Certificate of Incorporation, and submit yearly returns;
• compile annual statutory accounts;
• send HMRC a Company Tax Return. Directors must fill out Self-Assessment tax returns and pay tax and National Insurance if they receive salaries;
• register for and pay current VAT rates if your takings exceed £85,000 per year.

For registration, you must first choose the name of your company which doesn’t have similarities to other trademarks. It also must end with a limited company or Ltd, or the Welsh equivalents if you are registering your company in Wales. 

Step by step guide on how to set up a Limited Company can be found here.

Finding the right business structure for your start-up is crucial as it will have implications on your taxes, finance, and overall business success. If you need advice on what business structure is right for you, feel free to get in touch with our team of experts. 

More information on how to set up a business in the UK can be found on the official government website.