A private limited company is a company limited by shares. The company is run by its directors on behalf of its shareholders. There must be at least one director and one shareholder for any new private company. The same person can be director and shareholder. The shares in a private company cannot be traded on a stock exchange, this is only open to public limited companies.
A limited company is a legal person, which means that it is separate from its owner’s finances. This legal separation brings various advantages and obligations / disadvantages that you would need to consider before setting up a company for your business.
Some of the reasons business owners decide to incorporate a company include:
With the rights that a limited company enjoys come responsibilities and restrictions including:
Although a company is a separate legal person from its directors and shareholders there are restrictions on how money can be taken out of the business. As a director of a company there are only three ways to take cash out of the business:
Companies must pay National Insurance at the rate applicable to salaries paid under a contract of employment. Deductions must also be made from the gross salary for National Insurance and Income Tax. Any salary must be paid under a contract of employment and is subject to the National Minimum Wage. Directors are not able to invoice their own company for their personal time spent working on the company.
Dividends are paid at a rate agreed by the company for each class of share. If a director is also a shareholder any dividend paid to shareholders will be paid to the director. Dividends can only be paid out of retained profits (after tax). If you want to pay dividends, you must have financial records to show that there are sufficient retained profits in the company.
Any money paid to a director that isn’t salary or a dividend must be considered a director’s loan. Full records of directors’ loans must be kept and depending on when they are repaid there are different rules on how they are treated for tax purposes.
All companies are required to use their official company name with any business correspondence. The company name must be stated on all stationery including Limited or Ltd at the end to signal that it has limited liability.
All business letters / emails, order forms websites must include the following information:
For more information on forming a company for your business or keeping financial records please contact Alterledger or visit the website alterledger.com.
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