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Company Formation Specialists

Back to FAQCompany Formation

Why would I need to set up a limited company?

 

One of the main reasons people register their business as a limited company is that they benefit from limited liability. Setting up a limited company not only means that you benefit from limited liability but the business is recognised as a separate legal entity. The company has its own responsibilities, obligations, profits, losses and debts.

A company is operated and controlled by its Directors, and any other officers for example, employees and shareholders. This means that shareholder’s financial liability is limited to the sum of the shares they own. E.g. if a shareholder owns 1 share of £1, they must contribute £1 to the debts of the company by paying for their share and if they have 100 shares of £1 each, they must contribute £100. If the company closes (i.e. it is ‘Wound Up’) and has outstanding debts to creditors, this contribution is not returned to them. However, they are not required to contribute any further funds (subject to any agreements with third parties), thus their liability is ‘limited’. If the company closes with no outstanding debts, the sum of the shares they own is returned to them, along with their share of any distributable profits. Similarly, if a third party should take legal action (e.g. to request compensation for an accident), this action is taken against the company and not the directors (subject to legislation governing director’s fiducial duties).

However other reasons for registering as a limited company may include possible taxation advantages, property holding, and the ability to interest external finance.

 

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