As part of their business planning, entrepreneurs should consider whether to incorporate a company and how to structure it.
Private limited companies – or LTDs in short – represent the vast majority of legal entities in the UK. In fact, thanks to the limited personal liability enjoyed by members, LTDs are common in many countries.
As opposed to entities with public ownership (PLCs), whose shares may be offered and traded to the public, LTDs are privately owned and enjoy less strict regulation while still offering the benefit of separate legal status.
Below is a list of some important aspects of LTDs.
Directors: there must be at least one director appointed. As per the current legislation, at least one natural person must be in office and additional directors may be corporate entities, although under new provisions coming into force corporate directors should no longer be permitted.
Company Secretary: companies have the option to appoint a company secretary, however, this is not compulsory.
Share capital: private companies must have at least one share in issue but there is no minimum capital requirement and shares can be in any currency.
Shares may be allotted for cash but also for consideration other than cash – i.e. goods / services / assets.
As for the issue of new shares, pre-emptive rights must be considered beforehand. Unless otherwise stated in the articles of association, the directors have the power to issue new shares if the capital has only one class of shares. In case of different classes, the directors must be authorised to do so by special resolution or by the articles.
Classes of shares: unless otherwise specified, the model articles provide for ordinary shares with identical rights one another. It is, however, possible to create as many share classes as the company wishes to and assign different nominal value and rights.
Persons with Significant Control: this generally corresponds to the beneficial owners, ie those who hold, directly or indirectly, more than 25% in the business, although there are some important differences.
Statutory registers: companies must keep several statutory registers, also including the new register of people with significant control. These may be kept at the registered office of the company or in any other place notified to Companies House. Under the new provisions, companies do also have the option to keep the registers on the Companies House central register.
Taxation: the current rate of corporation tax is 19%. Shareholders will obviously need to take into account the taxation on dividends if these are distributed.
Filing obligations: at the very minimum a company must file with Companies House the annual accounts and the confirmation statement (formerly the annual return). However additional forms and documents are required for specific company changes.
Bank accounts: despite the more stringent rules adopted by commercial high street banks, it is still possible to open an account if the bank’s requirements are met in terms of business and due diligence. Alongside the traditional banks, it is also possible to benefit from other fully accredited banking institutions which may make it easier for an account to be opened.