What is… a Limited Company?

What is a Limited Company?

Updated on 18/08/2014

A limited company is a separate legal entity that exists under the authority granted by statute. A limited company has substantially all of the legal rights of an individual and is responsible for its own debts. It must also file tax returns and pay taxes on the income it derives from its operations. Typically, the owners or shareholders of a limited company are protected from the liabilities of the business. However, when a limited company is small, creditors often require personal guarantees of the principal owners before extending credit. A limited company must obtain approval from Companies House to use its proposed name. A limited company must also adopt and file Memorandum and Articles of Association, which govern its rights and obligations to its shareholders, directors and officers. A limited company must file annual tax returns (‘corporation’ tax returns) with HM Revenue & Customs. Forming a limited company allows a number of other advantages such as the ease of bringing in additional capital through the sale of share capital, or allowing an individual to sell or transfer their interest in the business. It also provides for business continuity when the original owners choose to retire or sell their shares. This post was brought to you by Claudia Graham at Companies Made Simple