What is a limited company? The limited company is the most common business vehicle in use in the UK. It must be incorporated (registered) at Companies House and, once incorporated, the limited company becomes a separate legal entity, distinct from its shareholders, directors and employees.

In considering whether this is the best business vehicle for you, you must first know the basics of a limited company.

On incorporation under the Companies Act 2006, a limited company is required to have a Memorandum defining the company's relationship with its shareholders; and Articles of Association specifying the regulations for the company's operations.

The company is owned by its members and, as the name suggests, they enjoy limited liability: the company's finances are separate from the personal finances of its owners. A company must have at least one member.

A limited company may be limited by shares or by guarantee:

• Company limited by shares - Members' liability is limited to the amount of any unpaid shares held by them. Shareholders may be individuals or other companies. However, shares may not be offered for sale to the general public via the stock market. Most companies fall into this category.
• Company limited by guarantee - Members give a guarantee to contribute a set sum to the company in the event it goes into liquidation.

You will need to appoint at least one director to undertake the day to day management of the company. Whether one or more directors are appointed, at least one must be a real, individual person. Each director who is an individual must be at least 16 years of age. The directors (or sole director) must act in the best interests of the company and always in accordance with the Articles of Association. Directors may also be shareholders.

Finance comes from shareholders, loans or retained profits. Profits are usually distributed to shareholders in the form of dividends; some may also be retained in the business as working capital.

If a company is active and has any taxable income or profits, it must tell HMRC that it exists and is liable to corporation tax. Every financial year the company must compile statutory accounts, submit an annual return to Companies House and send HMRC a company tax return.

If you are considering forming a limited company and require additional information, contact our team who will be happy to help you get started!