What is a Ltd Company and how does it functions?

What is a Ltd Company?

Simply, a limited company is considered to be a separate entity before the law; personal finances of the owner and the directors are distinguished from the company?s finances.

A detailed answer to the question, what ?is a ltd company

In general, private limited companies can have any number of shareholders despite of the fact that the shares cannot be sold publicly. Because of this restriction, a private limited company has a limitation in the amount of capital it can raise. On the other hand, public limited companies are capable of offering their shares to the public and raise a greater amount of capital compared to the private limited companies.

Shareholders of both private and public companies are considered to be part owners of the respective companies. Despite the ownership, shareholders of the limited companies have restricted liability which is a great advantage in terms of potential risks. Further, the shareholders don?t have a personal responsibility about the debts of the company. When applying for loans, however, the directors would be asked to offer personal guarantees for the loans to the business (company).

Main differences of public and private limited companies

When it comes to Private Limited Companies, they can have any number of members. However, regulations don?t allow these shareholders to offer shares to the public. This is why the Private Limited Companies can raise a limited amount of capital.

Public Limited Companies should have at least two shareholders. As per the regulations, public companies must issue shares with a minimum value of ?50,000 before start trading.

Prerequisites of Setting up a limited company

  • The company must be incorporated under Companies House.
  • Depending on the type of the formation, a limited company must have at least one director. Every director must be over 16 years of age.
  • It is not always mandatory for a private company to appoint a company secretary. However, if a secretary is appointed it should be duly informed to the Companies House.
  • When it comes to a public limited company, the company secretary must possess necessary qualifications as a company secretary.

Documentation and accounting of a limited company

Companies House will give the respective company certain time duration to file the accounts. It is mandatory to file these accounts before the deadline. If not, a late filing penalty will be charged from the company. Apart from that, the accounts must be audited on annual basis.

Every limited company will be issues a special letter when filing the first Annual Return. This letter will contain specific information such as the authentication code of the company. Apart from that, it will contain necessary instructions you will require when filing the Companies House web services. Each time a structural change and/or a change in the management occurs, the directors are required to notify the same to the Companies House without fail.

Profits of a limited company

In general, the profits of limited companies are distributed among the shareholders as dividends. However, a certain amount of profits will be retained within the business in the form of working capital.