A limited company is a legal entity in its own right. The people running the company are separate from the business itself.
A limited company is:
- Owned by its shareholders
- Managed by its directors
- Staffed by its employees
The shareholders appoint the directors at incorporation and at subsequent board meetings and/or Annual General Meetings.
The directors appoint the employees and determine wages and salaries.
The company rewards its directors and employees by paying wages and salaries and sometimes providing benefits-in-kind. With self-employment the business could own a car and the sole trader could drive it. With a company, the director would be using a company-owned asset.
This distinction is one of the reasons some clients prefer not to run a limited company.
The company rewards its shareholders by paying dividends, providing certain criteria are met.
How Can We Help?
In very small companies, the shareholders, directors and employees can be the same people, but it is important to keep the roles separate as the finances for each are quite different. Astons Accountants can help you to understand this at the outset so that you don’t get into a muddle.
A company has its affairs dictated/governed by the Registrar of Companies, at Companies House. The accounts are filed and available for public view.
The company pays tax on its profits – the directors and shareholders must also pay any tax due on what they receive from the company.
It is important to contact the Tax authorities early on, especially regarding the company and its directors and employees.
The company needs to file annual Accounts with Companies House (on the public record), as well as with the tax authorities.
The company needs to file an Annual Return (about its officers and shareholders) at Companies House (on the public record), as well as Accounts. Astons Accountants can help with this document and most Companies House Annual Returns are now filed on line.
It is a more complicated form of business to learn about, to run and to finance. As it is a more complicated form of business it is more time-consuming and more expensive to run and administer.
What To Think About
The main things to think about are:
- Preparing an agreement to govern how the shareholders and directors will interact.
- Keeping on the right side of the Taxman.
- Keeping on the right side of the Registrar of Companies.
- Maintaining proper accounting records.
- Any need for, or benefit from, registering for VAT.
- Expenses that can be claimed.
- The need/obligation to run an appropriate payroll scheme
- Whether to claim mileage or purchase company-owned vehicles.
If you want to know more or talk about your specific situation, call us and we will talk it through with you.