Starting a Business in the Form of a Limited Company in the United Kingdom

Posted: January 18, 2024

A limited company entails an association that may be set to run a business. Limited companies offer legal protection and limited liabilities for its shareholders, whereby the shareholders are cosseted from losing their personal assets in case the company is bankrupt. The registration of companies in the United Kingdom is done in Companies House where all limited companies are registered for legal rationale. Limited companies may be either limited by guarantee or by shares. For companies that are limited by guarantee, there is no share capital, but the members act as the guarantors of the company by coming into an agreement of settling any debts of the company in the event of its liquidation. On the other hand, UK law confines companies limited by shares from selling their shareholders’ contribution to the public. In accordance to the UK law, all the activities and finances of the company are only limited to the company and personal activities have no impact to the success or failure of the organization (Border and Fairwealther, 2004, 43).

The company solely owns any profit generated by the organization, and it can only be shared among the shareholders after corporate taxes and other operating expenses are compensated. Proper management of the business funds leads to success of a limited association because there will be continued generation of profit, which in return motivates the shareholders to remain focused on day-to-day business operations (Brough, 2005, 45). A limited company in UK has to incorporate at least one director, although there is no perimeter to the number of executives that the company should have. Executives of the association may be either an individual or a corporate body that are assigned with the responsibilities of managing the organization. These directors should ensure proper management of the organization by seeing to it that the day-to-day activities are geared towards the achievement of the set aspiration. They are also responsible for the expenditure of the company and are supposed to be aware of the company’s financial position at all times (Brough, 2005, 48). A limited organization may also have a company secretary for the purposes of maintaining the company’s statutory register, minute book and preparing as well as lodging any returns that may be required by the organization. Every limited company has shareholders who in most cases are the owners of the company and are responsible for all its activities, which result in its growth. The numbers of shareholders are not limited, but there must be at least one shareholder. The area of residence of the shareholders is not defined, and they can resign anywhere in the world provided they take the accountability of the organization (Sullivan and Sheffrin, 2003, 120).

Pros and Cons of Setting up a Limited Company

Setting up a limited company is more profitable as compared to unlimited companies and sole proprietorship where the liability of shareholders is not limited and personal assets may be used in settling business debts in the case of bankruptcy. In a limited organization, the liability of the shareholders is limited. This is the most important element in a limited organization because there is security over the assets of the shareholders since their personal assets cannot be used in the settlement of the organization’s debts. The debts that a company’s shareholders can settle are those that the organization accrued and are in line with the level of their investment in the company. Secondly, being a separate entity, a limited company is preferred by many investors because the company can operate beyond the life of its owner (Robert, 2003, 34). The company continues being in operation even after the death of its owners, which creates confidence among the employees because they will be assured of job security. Taxation and tax advantage are other benefits of setting a limited company. Taxes on limited companies are only imposed on their profit, which is approximately 20% and are not subjected to higher taxes. This minimized tax rate is beneficial to the shareholders because there will be an increased profit shared among members after the company’s expenses are settled. On the other hand, it is an advantage to the employees because there will be increased bonuses as a result of low taxes, which enables the organization to generate more profit (Sullivan and Sheffrin, 2003, 120). Fourth, it is easy to start and run a limited company. Registration of companies in UK has been made easy and one may start a limited company within hours because the registration may be done online, which is easy and a quick process. Potential prestige and credibility is also an advantage associated with limited organizations. There is permanence and commitment of the administration towards prosperity of the organization.

This assurance of importance of durability gives the customers, suppliers, employees, and the society confidence of a continued existence of the organization to serve them for many years (Sharma, 2013, 224). Many purveyors and employees do not prefer sole traders because there are high chances of its extinction as compared to a limited company where there are bylaws that govern its survival and have to be adhered to prior to its closure. Lastly, there are possibilities of pension, which is an advantage to its employees and the owners of the organization. A limited company can derive terms and conditions that allow its employees to contribute money towards their retirement plan. This retirement plan enables its accomplices to prepare for future where they will have accumulated funds that would be used in future (Saha, 2013, 13). Other than the advantages, various disadvantages are associated with setting a limited company. First, there is restriction in raising capital via the sale of shares. Limited company is limited in generating more capital through the sale of share to the public because the shares of the shareholders are not sold to the public, but can only be transferred to a third party. This form kind of restrictions can lead to collapse of the business due to lack of funds, which would otherwise be generated through selling some of shares to the public.

Delusion of power is a disadvantage to a limited organization also because there may be some shareholders or directors with personal motives, which may not be in line with the set goals of the organization. There may also be difficulties in decision-making (Robert, 2003, 34). The decision making process may be slow because all shareholders and directors have to be consulted and a consensus arrived at, which may result in conflict among some directors who may not come into an agreement. A slow decision making process may result in collapse of an organization because there will be no timely response to arising predicaments. Complex account is another disadvantage because the company is required to produce yearly account of the business financial profits and expenses with a double entry format of balance sheets (Gupta, 2008, 100). Such entries may be hectic as compared to sole proprietorship where there are no such records required. Such disadvantages prevent people from setting up limited companies because they are afraid of the responsibilities associated with its complex operations.

Duties and Legal Obligations Associated with Running a Limited Company

Any organization and its directors and shareholders must adhere to legal obligations. Adhering to legal obligations, helps an organization to run smoothly because all rules set by the state will be observed, hence there will be no illegal businesses conducted by the organization. For a limited company to maneuver productively, it is obliged to adhering to all declaration of a limited company. First, shares have to be issued to the subscribers. Directors are supposed to issue and allot one share of one pound per share to all subscribers to the memorandum of association. All directors or majority of the directors in the case where the company has more than one director should agree on issuing the shares. Secondly, share certificates should be issued to the shareholders. Share certificates are issued to the shareholders in the first board meeting. This motivates the shareholders to work positively towards the achievement of the company’s goals because they will feel they are part of the organization. Opening a bank account is another legal obligation that has to be adhered to. A bank account should be opened where all funds of the organization are deposited (Gupta, 2008, 100).

Organization’s bank accounts helps in avoiding losing company’s funds because personal accounts will not be used for business purposes. Auditors should also be appointed as a fulfillment of legal obligations associated with limited companies. Since limited company is required to submit annual returns on their accounts, the directors should appoint auditors who are independent and not employees of the organization. These auditors will help in the submission of submission of reports on the company’s accounts to the registrar of companies for taxation purposes. Company secretaries should also be appointed with an aim of ensuring proper management of the organization’s books of account and other necessary document of the association. For the companies that do not appoint a secretary, one of the directors should perform the roles of a secretary. Deciding on the financial year to use is also a legal obligation of a limited company. The financial year is the date of the month in which the organization decides to end its financial year (Baxt, 2005, 79). This helps an organization to determine whether the organization has been generating profit or not and necessary strategies for making the organization better laid down for efficient profitability if the organization. The directors of a limited company should also determine frequency of board meetings. Board meeting are important for any organization because the directors are able to discuss critical issues regarding the organization and generate better ways of solving any problem affecting either the shareholders, employees or the organization in general. It is also important for an association to determine whether to hold annual meetings of not (Clayton, 2008, 47). Annual meetings are important to organizations because a general report on the progress of the organization will be analyzed, which will in determining whether the organization is running effectively towards the achievement of the set goals. Lastly, in regards to legal obligations of a limited company, tax payment must be an obligation of the organization. The directors of a limited company are required to register their company to a local tax office where their levy will be paid. Every organization is required to have specific duties and responsibilities that directors have to implement in the process of day-to-day operation of the organization.

First, it is the duty of a director to promote the success of the organization. A director is supposed to act positively and intelligent towards the success of the organization. Directors with personal interests should not be allowed to run the operations of the organization because they will work towards the achievement of personal goals rather than those of the organization. Secondly, they must practice personal judgment (Bob, 2004, 90). Leaders should have the ability to make quick judgment to a situation without necessarily involving others. Such directors are effective because there will be no time lost waiting for other executives for the purpose of making a succinct verdict of a certain circumstances in the organization. Efficient administrators have the responsibility of avoiding conflict of interest in the organization (DeMott, 2001, 227). Any successful organization should have bosses who avoid conflict of interest among other directors and employees. Conflict resolution should also be prioritized in an organization because divergence among employees or administration may result to collapse of an association. Organizations that have leaders who play their roles effectively are bound to success because all set goals will be achieved, customer and employees needs will be satisfied, hence resulting in increased profit generation.

Duties and Liabilities in the Termination of a Limited Company

Limited Liability Company may consider termination of its operations due to mutual agreement of the owners of the company. Achievement of the set goals and members not willing to continue with the business may also lead to a closure of a business. If the set goals are achieved, the shareholders may decide on termination of its operations. Petition of one member for a resolution through a court order also contributes to closing of business activities indefinitely. Lastly, an organization may be terminated if the administration does not maintain administrative directives. All companies are supposed to maintain all required administrative directive for effective performance of organizational activities for the purposes of achievement of the set ambition. In the event of such occurrences, an organization may be terminated and it is the first step in the termination of a company. Active dissolution of a limited company is the second stage in termination after an event is triggered (Levene, 2006, 76). At this stage, all activities of the company are terminated. Filing articles of termination is the third stage where the article of termination is prepared and then filed. Lastly, wrapping up is the last stage where all termination files are maintained (DeMott, 2001, 227). Unlimited Liability Company may be terminated voluntarily by its owners or by force through a court injunction. Through a voluntary termination, members may agree on termination of an organization in the event where they have successfully concluded their contract and the set goals achieved. If the period of operation is terminated a company may be closed in the event where its members do not want to renew its operating period.

Occurrence of the event is the first step in closure of unlimited liability whereby, there has to be an event that will automatically trigger need for closure. In the second step, the assets of the organization are identified and sold in accordance to the agreement of the shareholders, and the funds generated from the sale shared among the owners of the company (Schenone, 2005, 56). Lastly, the debts of the company are settled and the company is closed indefinitely. There may be compulsory liquidation of company’s assets through a court order in case the company has debts that are not settled and are required to be settled. This will lead to selling of some of the assets owned by the company. If the company has no many debts and the money that the company has is enough to settle its debts and to pay its employees, its assets will not be sold. Before the closure, a company may choose to go dormant for some months to enable its customers and suppliers are aware that they are in the process of closure (De Vries, 2010, 35). This will enable all companies and individuals who claim money in the company to be compensated in time before the official closure of the business.


Setting up limited company is efficient for both small and immense companies because they are easy to run and mostly in United Kingdom Law, formation of a limited organization is not intricate because they can be registered online. Online registrations of limited businesses give a chance for many investors to operate businesses freely without the fear of not meeting legal registrations (Campbell, 2007, 57). The fact that the liabilities of shareholders are limited motivates many investors to setup limited companies because their assets will not be used in settling company’s debts. The duties of the directors and employees are defined, which helps in avoiding collision of activities in the organization.


Baxt, B.R. 2005. Duties and Responsibilities of Directors and Officers. New York: AICD publishers.

Bob, R. 2004. Finance and Accounting for Business. New York: Cengage Learning.

Border, R. and Fairwealther, M. 2004. Setting up a Limited Company. New York: Routledge.

Brough, G. H. 2005. Private Limited Companies, Formation and Management. New York: Sweet & Maxwell.

Campbell, C. 2007. International Liability of Corporate Directors. New York: Lulu publishers.

Clayton, P. 2008. Forming a Limited Company, a Practical Guide to Legal Requirements and Procedures. New York: Kogan Page Publishers. 

De Vries, P.P. 2010. Exit Rights of Minority Shareholders in a Private Limited Company. Cambridge: Kluwer.

DeMott, D. A. 2001. “Transatlantic Perspectives on Partnership Law: Risk and Instability”, 26 Journal of Corporation Law, 2 27. 

Gupta, A. 2008. Financial Accounting for Management: An Analytical Perspective. Cambridge: Pearson Education.

Levene, T. 2006. Paying Less Tax for Dummies. London: John Wiley & Sons.

Robert B. 2003. Setting Up and Running a Limited Company: A Comprehensive Guide to Forming and Operating a Company as a Director and Shareholder. New York: Kogan Page Publishers.

Saha, 2013. Business Organization & Management. London: Tata McGraw-Hill Education.

Schenone, S. 2013. Duties and Responsibilities of Directors and Company Secretaries. London: New Zealand Limited.

Sharma, 2013. A. Company Law and Secretarial practice. London: FK publishers.

Sullivan, A. and Sheffrin, S. M. 2003. Economics, Principles in action. Upper Saddle River, New Jersey: Pearson Prentice Hall.

Free Features

Limitless Amendments for


Bibliography for


Outline for


Title page for


Formatting for


Plagiarism Report for


Order Now