There are three main types of business entity which people use as a means of conducting a trade or other activity in the UK. These are: UK limited companies, sole traders and partnerships.
Registering a company is popular choice amongst business start-ups because they are easy to set-up, relatively inexpensive and as the name suggests, provide limited liability.
Limited Liability and UK Companies
The word limited in the context of setting up a UK company means that the exposure of the shareholders is restricted to the amount they own for their shares.
For example, if a company is formed and a person takes 1,000 shares of £1 each, the maximum which they would be required to pay should the business go in to dissolution would be £1,000.
This is irrespective of the amount the company owned or the personal assets the shareholder had in their possession.
Other business entities such as sole traders and partnerships do not permit the owners of the enterprise to exclude their liability. In such cases, should these businesses fail owing money to creditors, the owners would have to make up any shortfall from their personal assets and could be compelled to do so by a court.
Limited Companies as Separate in Law
The reason why UK limited companies are able to protect their shareholders in this way is because the owners and the business are seen as separate in law. This prevents a direct connection between the two from becoming established.
Sole traders and partnerships, on the other hand, are seen as the same entity as their owners and therefore, the activities of the business as seen as those of the owners.
This is one of the factors which contribute to limited companies being the preferred choice for many who are starting a business in the UK.
Requirements to Register a UK Limited Company
There are certain requirements which must be met in order to successfully register a UK limited company. These are as follows:
At least one company director
A secretary (optional since 6th April 2008)
At least one share issued on incorporation
A registered office must be designated
