Spire Accountants

 A company limited by shares is a legal entity that is owned by shareholders whose liability to company creditors is limited to the amount they agree to pay for their shares. Designed for commercial (‘for-profit’) enterprises of all sizes, a limited by shares company is the most commonly used business vehicle in the UK after the sole trader structure. A company limited by shares can be either public or private,

A public limited liability company is one whose shares may be freely sold and traded to the public. 

The majority of companies limited by shares in the UK will be private. A lot of them will be owner managed businesses - the shareholders (the owners) also manage the business.

Companies limited by shares are incorporated at Companies House (the UK Registrar of Companies). 

They exist in their own right, separate from the people who own and manage them.

They have independent legal capacity, which means they are responsible for their own liabilities and actions, just like individual people.

This means that, upon incorporation, a limited company can employ staff, enter into contracts, buy and lease property, borrow and lend money, and sue or be sued in its own name.

A limited by shares company is owned by members, each of whom holds a minimum of one ‘share’ in the business. Thus, they are known as shareholders. The very first shareholders (those who set up the company) are also known as subscribers.

Both public and private companies require at least one member at all times. Any legal person (e.g. an individual or a corporate body) can be a shareholder, and there is no minimum age requirement.

Members provide capital to the company in exchange for shares. They are normally entitled to a portion of the company’s profit and the right to vote on important decisions that affect the business.

Directors are responsible for running the company and managing its day-to-day affairs. They are appointed to the role by the members of the company.  

Public companies limited by shares require at least 2 directors whilst private limited by share companies only need 1. The directors must be, in all cases, over the age of 16. 

The directors may be a natural person or a body corporate but they must have at least one natural person as director.

The ownership of a company limited by shares is divided into shares, each of which represents a percentage of the company. So, for example, if a company issues one share, it represents 100% of the business; if it issues two shares, each one represents 50% of the company.

The minimum number of shares that a company must issue is one per member. The class, quantity, and value of each member’s shareholdings determine their percentage of ownership, how much profit they are entitled to, and the extent of their control over the company.

Limited liability is one of the main advantages of forming a limited company. Since companies exist as distinct legal entities, they are responsible for their own liabilities.

This means that each shareholders personal liability for company debts is limited to the sum of money they agree to pay for their shares. Accordingly, shareholders only risk losing the amount they invest in the business, in addition to any personal guarantees they provide.

1. Choose a company name – Check availability on Companies House.

2. Appoint directors and members – You will need at least one of each.

3. Prepare articles of association – This sets out how the company will be run.

4. Register with Companies House – Apply online at Companies House.

5. Open a business bank account – Essential for managing finances.

6. Understand tax obligations – Will be subject to corporation tax..