Running a limited company presents a range of responsibilities. A limited company is a separate legal entity and the finances of a limited company are separate to the individual shareholders and directors finances. Limited companies are subject to tight reporting and financial responsibilities and the directors of the limited company have their own duties and responsibilities.
Limited liability
A company’s liability is limited to its shares. The advantage of limited liability will generally apply in respect of liabilities to other creditors. A company is a legal entity and has its own right, separate from its owners (the shareholders). It can own property or be sued.
Shareholders
Limited companies are limited by shares owned by the shareholders (who can be individuals, another company or an institution) who must own at least one share of the company. A shareholders invests money in the company by buying shares, by this they have a potential for sharing in the profits of the company. The liability of shareholders is limited to the value of their share capital.
Dividends
Dividends are paid from the profits of the company once the tax liability has been calculated and paid. They can either be paid as a final dividend after the year end, or can be paid as an interim dividend in advance of the final profits being established, however it is a legal requirement for the profits of the company to be sufficient to pay these dividends after allowing for the corporation tax liability. Dividends are income for the shareholders and are subject to their personal taxation.
Directors
A director can be involved in establishing a new company or appointed later to the Board of a company. The legislation requires that directors act in the interests of their company and not in the interests of any other parties (including shareholders), even if they are sole directors. Full statement of director’s duties are set out in Companies Act 2006.
Accounts and Confirmation Statement
There is a requirement for a company to prepare financial statements and to maintain accounting records for six years from the end of company financial year they relate to. A company’s accounts and confirmation statement must be filed annually with the Registrar of Companies. Non-compliance can lead to penalties, disqualification of company directors and the company may be struck off.
Taxation
Staff members and director employed by the company will be paid on a regular basis along with PAYE tax, NICs and pensions deductions from their wage. The company as an employer will be required to pay an employers’ NIC and employer pensions contribution. The company directors and employees might receive benefits-in-kind from the company (for example company cars and private medical insurance). Most benefits are subject to income tax and the company will have to meet an extra charge of NICs on the value of the benefits.
Corporation tax
The company profit will be subject to corporation tax. The main rate of corporation tax increased from 19% to 25% on 1 April 2023 for companies with profits over £250,000. The 19% rate became a small profits rate payable by companies with profits of £50,000 or less. Companies with profits between £50,000 and £250,000 will pay tax at the main rate reduced by a marginal relief, providing a gradual increase in the effective corporation tax rate.