A limited company is the type of business in which the shareholders have a limited liability, restricted to their investment to date. The number of shareholders and their stake in the company varies immensely in a limited company and relative to their size. The Companies Act sets out parameters to categorise companies and hence allows various legal and tax benefits.

Distinguishing between Small and Medium sized companies

The figures mentioned here are for the public limited companies.

A larger structure of each of the criteria will classify the company as a Large Company.

The advantages of a limited company are many. These are listed as follows:

• A limited liability company has a higher credibility, strictly due to its size and asset base

• The shareholders, the owners of the company, have limited liability in the business, therefore, have the liberty to invest further or disinvest from the business

• It is easier to raise to finances from sources such as financial institutions or potential and existing shareholders

• The shares can be bought or sold between individuals either in public or privately, depending on the type of limited company has been formed (discussed later)

• There are various tax advantages for investors to keep their money with the business

• The ownership and management of the company are separate, which allows experts to be hired as the directors of the company and the owners can overlook their proceedings

• The company can sue and be sued in its own name, and the directors and/or shareholders are not responsible for its debts.

There are, however, disadvantages associated with larger companies.

• The cost of setting up or purchasing a limited company is far higher than a sole proprietorship or partnership

• The presentation and publication process of the annual financial statements is much more complex

• An independent audit is necessary once the turnover for the year touches or exceeds £1 million

• National Insurance contributions (NIC) are higher for limited companies as the contribution on behalf of the employer and employee are to be made

The limited liability company structures are of three types.

1. Public Limited Company (plc)

2. Private Limited Company or Limited Liability Company (Ltd or Limited or LLC)

3. Limited Liability Partnership (LLP)

Every company is required to submit the Memorandum of Association and Articles of Association to the Registrar of Companies before commencing regular business.

Memorandum of Association

The registration process starts with the presentation of the Memorandum of Association at the Companies House. This document consists of a few important items.

Company Name
The proposed name should comply with the rules stated in the Business Names Act 1985 and the Company and Business Names Regulations 1981. The name selected must end with either Limited or Ltd but must not be stated anywhere else. You should also refer the Trade Marks Register at the Patents Office and the Companies Names Index at the Companies House.

Registered office
The location of the registered office of the private limited company must be stated. The location must be within the UK.

Objectives
This statement should consist of the central objective(s) of the company. This statement should be broader in its sense to include all possible future ventures.

Limited Liability
This should clearly state the basis of shareholding, mentioning that they will have limited liability on their investment with the company.

Capital
The composition of the share capital, the total value and the way it will be distributed must be mentioned.

Articles of Association

This document is a comprehensive statement covering the rules and regulation for running your company. You may use Table A in the Companies Act in full or part; the amended statement should be submitted for registering. The articles should include the following important elements:

The method of allocation and transfer of shares issued by the company
Shares are issued based on subscription by the public. All shares have a nominal value and the value collected is used to purchase the assets of the company and used to finance the operation. Each investor/shareholder receives a share certificate as evidence of the ownership of the company and the right to exercise control, in collaboration with other shareholders or independently, depending on the holding percentage. Whoever has the majority of the shares (51%) he/she effectively controls the company.

The issue of the number of shares is limited to the number stated in the memorandum of articles, but there is no limit to the number of shareholders investing in the company. The value of each share is ordinarily £1 or 50p.

The procedure for holding board meetings
A company is required to hold annual general meetings, the agenda being the presentation of financial statements to the shareholders and giving their opinion of the performance over the year ended. In each general meeting, the shareholders elect or re-elect a board of directors to head the affairs of the forthcoming year. A notice is issued to the shareholders to take part in the meeting during which decisions are also made that affect the future policy of the company.

An emergency meeting, known as an extraordinary meeting, may be scheduled to address matters of urgency. The proceeding is the same as the general meeting except that the notice period to shareholders is shorter.

The decisions made in the meetings are known as resolutions. Resolutions passed in any extraordinary or special meetings are required to be submitted within 15 days at the Companies.

The responsibilities of the directors, the company secretary and the authority exercisable by them

The rules for the formation of a company provide that there must be at least one director, who may also hold the position of the company secretary. The personal details of the individuals must be submitted to the Registrar of Companies along with details of earlier positions in any other company as the director. There is no age restriction applicable except for a minimum age limit; any disqualified directors of other companies or representatives of companies not discharged from bankruptcy cases are not eligible.

The company secretary is responsible of making sure that all regulations set out in the Articles of Association and the legal requirements are strictly followed. They are also required to notify the Companies House of any changes in the constituency of the Board of Directors or the secretary and any policy changes. S/he is also required to submit all company annual returns and resolutions in the company memorandum and articles of association. Failing to do so may result in heavy penalties and possible removal from the Companies Register.

The rights and control exercisable by shareholders
The articles should inform the public the level of control exercisable by each shareholder or how many votes does each share carry. In addition, the number of votes required for moving a resolution, calling an extraordinary meeting, removing a director etc.