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Limited Company

 

A limited company is a business entity which exists in its own right; that is, it is separate from the people who own and manage it. Should the owners retire or die, the company would not cease to be in existence as is the case with a sole trader or partnership.

All limited companies in the UK have a registration number which consists of six or seven digits. The number is given upon its incorporation by Companies House, the Government body charged with incorporating UK limited entities.

UK limited companies are run by one or more directors which by law, there must be at least one at anytime throughout the company’s existence. Failure to comply with this requirement might result in the company being struck off and dissolved.

Advantages

Private limited companies can have the following advantages:

One of their main benefits is that they separate the owners of the business from the company itself and thus protect the private assets of the shareholders.

Having shares enables the company to have a simple yet effective means of determining ownership of the business. In cases where there is more than one shareholder it is often the case that the business can operate using standard memorandum and articles of association for its constitution.

Unlike partnerships, it is often not necessary to have a specially written agreement to determine actions when specific events occur.

The taxation of limited companies operates differently from those business vehicles describes above. Namely, there is a distinction made between the profit the company earns and the amount if any, which is distributed to the owners.

The new venture might then benefit where a significant proportion of any profit is retained to increase stock levels.

Limited companies are frequently judged to be more substantial businesses than their unincorporated counterparts and thus may find financing and trade negotiations slightly more favourable.

It would not be fair to suggest that a limited company alone can make a new venture a success. Many other factors would play a part in the outcome of the new venture.

Disadvantages

As with the other types of business vehicle, there are some potential disadvantages to choosing of limited companies for the new venture.

Limited companies generally require higher maintenance in the form of annual published accounts, annual returns and the keeping of publicly accessible statutory records.

Company’s accounts are available publicly through Companies House which might provide competitors with more information than they would have gained had this requirement not existed.

There is however disclosure and reporting exemptions available to smaller companies which would limit the amount of information which might reduce the amount of valuable information available to third parties.

 
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