A limited liability company (LLC) has a separate legal identity to those of its owners. This means that the owners of a LLC, the shareholders, cannot be personally liable for the firm’s debts and liabilities. Their liability is limited to their investment or the amount they have guaranteed to the company. They will not manage the business unlike with a sole trader or partnership as the business will be run by directors appointed by the shareholders. The directors will often also be shareholders but they do not need to be. As directors they will have legal responsibility for the conduct of the company and also have a duty towards it.There are various types of LLCs but the most common for a small business is a Private Company limited by shares. The shares could not be offered to the general public. Only one member or shareholder is required to incorporate the business who will usually also be a director. Should the business fail liability will be limited to the value of unpaid shares. A Private company can also be limited by guarantee where shares are not issued and the member offers a guarantee in the event of the company being wound up. Public limited companies are large organisations authorised to sell shares to the general public and will be listed on the stock exchange.
Private Limited companies are set up (Incorporated) by registering at Companies House in Cardiff who maintain the registration of all UK companies. HM Revenue and Customs must be informed as soon the company starts trading. It is usual to use a company registration agent such as although you can register a company yourself online here
Private Limited companies are set up (Incorporated) by registering at Companies House in Cardiff who maintain the registration of all UK companies. HM Revenue and Customs must be informed as soon the company starts trading and you must register for Corporation Tax within 3 months. It is usual and easiest to use a company formation agentalthough you can do it yourself online.
To incorporate a company you will need to register an individual company name and provide an address for the registered office of the company. There must be at least one shareholder and one director. The shareholders will sign a memorandum of association agreeing to form the company and the rules setting out how the company is to be run known as the articles of association. Once registered companies house will issue a Certificate of Incorporation with a company number.
A company must prepare annual accounts and send an annual return to Companies House and a tax return to HMRC. If it has a turnover of more than £82,000 a year it must register for VAT. The directors must submit a self-assessment tax return each year and pay tax and National Insurance contributions if they are paid a salary by the company.
Apart from the very real advantage of the company’s finances being separate from those of its owners and providing protection from personal liability there are other advantages. A private limited company carries a certain status and adds credibility to the business which can make it easier to borrow money and raise finance. The business will not cease should the owners die or retire and there can be certain tax advantages. However there are also disadvantages in the complex business structure. Both shareholders and directors have particular formalities with which to comply and they must hold annual meetings. There will be administrative fees to pay and annual accounts must be filed. The directors will have a number of legal obligations.