A limited company is, in legal terms, a person in its own right. It can incur debts and accrue wealth in its own name, and is responsible for those debts. The shareholders within the company are only indebted to the company on any outstanding payment of shares and as such shareholders liability is limited to this outstanding payment. The advantages of having separate legal status gives protection to the shareholders and directors of a limited company in that they cannot be pursued for debts incurred by the company – assuming they have acted in good faith and the Directors have performed their duties fiducially.

There are other benefits of limited company status in that there are certain tax benefits to be gained - Limited Companies are subject to Corporation Tax rules rather than Income Tax rules.

Of course, the consequence of the above is that there is an increase in the reporting requirements of a limited company, with company’s having to make annual declaration to Companies House and also having to submit annual returns to the same, which can be viewed by the public. Consequently trading performance and information relating to the business can be viewed relatively easily by suppliers.

Limited companies can be also be subject to Audit requirements, which can take up significant management time. However, the law states that a company must turnover more than £5.6m per annum or a balance sheet net worth not more than £2.8m for Audit rules to apply.

For further information on limited companies and the benefits that are available please contact us.