A Guide To Private Limited Companies
If you’re looking to set up a business in the UK, one of the structures you may be considering is a private limited company (PLC). There are various benefits or running your business as a PLC such as limited liability for shareholders, greater stability and flexibility, and tax advantages. However, there are also some potential downsides to consider such as increased regulation and compliance obligations. In this guide, we’ll take you through everything you need to know about setting up a private limited company in the UK from setting up a PLC to the directors’ responsibilities.
What is a Private Limited Company?A private limited company is a type of legal entity in the UK. It’s a company that’s owned by its shareholders who have limited liability. This means that if the company gets into financial difficulty, the shareholders will only lose the money they’ve invested in the business and not any personal assets. The shares of a private limited company can’t be offered to the public and are often only held by a small number of people. This is different to a company that has been listed on a stock exchange for which anyone can buy shares. A private limited company must have at least one shareholder and one director. The shareholders appoint the directors who then run the company on behalf of them.
The Benefits of a PLC StructureThere are various benefits to setting up your business as a private limited company including:
- Limited liability for shareholders: As we mentioned, the biggest benefit of setting up a PLC is that the shareholders have limited liability. This means that they’re only at risk of losing the money they’ve invested in the business and not any personal assets.
- Greater stability and flexibility: Private limited companies tend to be more stable than other business structures such as sole traders or partnerships. This is because they have a separate legal entity from their owners. This also gives private limited companies more flexibility when it comes to raising finance as they can sell shares to raise money.
- Tax advantages: Private limited companies also have some tax advantages. For example, they’re able to claim corporation tax relief on certain expenses.
The Potential Downsides of a PLCHowever, there are also some potential downsides to setting up your business as a PLC that you need to be aware of including:
- Increased regulation and compliance obligations: Private limited companies are subject to more regulations than other business structures. For example, they’re required to file annual accounts and an annual return with Companies House. They’re also subject to corporation tax.
- Difficulty in raising finance: Another potential downside of a private limited company is that it can be more difficult to raise finance as shares can only be sold to a limited number of people.
How to Set Up a PLCIf you’ve decided that a private limited company is the best structure for your business, there are a few things you need to do to set one up:
1. Choose a nameChoosing the right name for your PLC is a very important first step. The name you choose will be used on all official documents and it will be how your customers and suppliers identify your business. There are a few things to bear in mind when choosing a name for your PLC:
- It must not be the same as another registered company
- It must not contain any offensive words or phrases
- It must not suggest a connection with the government or public bodies
- If you want to trade under a different name to the one you’ve registered your company with, you’ll need to register that as a trademark.
2. Choose a company secretary and directorsEvery private limited company must have at least one shareholder and one director. The shareholders appoint the directors who then run the company on behalf of them. You need to decide who you want to be your company secretary and directors. They can be anyone over the age of 16, but it’s always advisable to appoint someone with relevant experience or qualifications. If you are the only shareholder and director, you’ll need to appoint a company secretary. This is the person who is responsible for complying with the company’s statutory obligations. Your company secretary can also be anyone over the age of 16 and you should also check their credentials to make sure they are up to the task. If you’re appointing more than one director, you need to decide how they will make decisions. You can do this by either having a board of directors or by appointing a managing director. A board of directors is a group of people who are responsible for making decisions on behalf of the company. They typically meet on a regular basis to discuss company strategy and make decisions. A managing director is an individual who is responsible for making day-to-day decisions on behalf of the company. They report to the board of directors but have more authority than other members of staff. It’s important to note that, even if you appoint a managing director, the board of directors still has overall responsibility for the company.
3. Plan your directors’ meetingsYou also need to decide how often your directors will meet. There is no legal requirement for how often they must meet but it’s generally advisable to have at least one meeting per year. At these meetings, the directors will discuss a range of topics such as company strategy, financial performance, and any legal or compliance issues. You should also appoint a chairperson for your directors’ meetings. This is the person who will preside over the meeting and make sure that it runs smoothly. It’s a good idea to have an agenda for each meeting so that everyone knows what will be discussed. This will help to keep the meeting focused and ensure that all the important topics are covered. You should also take minutes at each meeting. This is a record of what was discussed and any decisions that were made. The minutes should be circulated to all the directors so that they are aware of what was discussed and agreed upon.
4. Organise annual general meetingsYou should also consider holding annual general meetings (AGMs). This is a meeting of the shareholders where they can discuss the company’s performance and elect the board of directors. AGMs are not legally required but they can be a good way to keep shareholders informed about the company and its plans for the future. At the AGM, you should also appoint a company auditor. This is an independent professional who will examine the company’s financial records and make sure that they are accurate. The auditor will report their findings to the shareholders at the AGM. You can either appoint an individual auditor or a firm of auditors.
5. Choose “people with significant control”You also need to identify any “people with significant control” (PSC) who have a noteworthy influence over the company. This could be a shareholder with more than 25% of the shares, a director, or someone who has the power to appoint or remove directors. You should keep a register of PSCs which must be available for inspection by any member of the public. It’s important to identify PSCs because they have certain legal rights and responsibilities. For example, they must be notified of any changes to the company’s articles of association (see below). PSCs also have the right to inspect the company’s financial records and request information about the company.
6. Produce a memorandum of associationThe next step is to prepare a document called the memorandum of association. This sets out the company’s name, its registered office address, and its objects (i.e. what it can do). The memorandum also needs to state that each shareholder agrees to become a member of the company. This means that they are bound by the company’s articles of association (see below). Once you have prepared the memorandum, it needs to be signed by each shareholder. You should then keep the original copy in the company’s registered office so that it is available for inspection by any member of the public.
7. Produce articles of associationThe articles of association are a set of rules that govern how the company will be run. They cover topics such as the powers of the directors, the procedure for holding meetings, and the rights of shareholders. It’s important to have a well-drafted set of articles because they provide clarity on how the company should be run. They can also help to resolve any disputes that may arise between the shareholders, directors, or other members of the company. As with the memorandum of association, the articles need to be signed by each shareholder and the original copy kept in the company’s registered office.
8. Register your companyThe next step is to register your company with Companies House. This is the government agency that keeps a record of all limited companies in the UK. You will need to provide a number of documents, including the memorandum and articles of association, when you register the company. You will also need to pay a registration fee. Once your company is registered, you will be given a unique company number. This is how your company will be identified on all official documents. You should also register for corporation tax at this stage. Corporation tax is a tax that companies have to pay on their profits. You can register for corporation tax online or by post but it is essential to do it on time and keep up to date with payments or you may be liable for penalties. You will also need to open a bank account in the company’s name. This is where you will deposit money that belongs to the company, such as shareholders’ investments and profits from sales.
9. Prepare accounting and company recordsAs a private limited company, you are required to keep accounting records. These records must contain information about the company’s income and expenditure, as well as details of its assets and liabilities. You will need to prepare annual accounts, which show the financial performance of the company over a 12-month period. You will also need to prepare a company tax return, which is used to calculate how much corporation tax the company owes. It is a legal requirement to keep these records for at least six years.
The Responsibilities of PLC’s DirectorsAs a director of a private limited company, you have a number of important legal responsibilities. These include:
- Ensuring that the company complies with its articles of association
- Keeping accounting records
- Preparing annual accounts and filing them at Companies House
- Paying corporation tax
- Complying with other legal obligations, such as health and safety legislation