Limited Companies - Harrods, Dyson, You?

Harrods and electrical pioneer Dyson use the same business model as the local tradesman with a van displaying ‘Limited’ or ‘Ltd’. Yes, really!

This exceptional commercial tool is suitable for businesses of a variety of sizes and pursuits, and is almost as easy to establish as a partnership. With your liability limited to that which you have invested in shares (which could be as little as £1.00), it is no wonder that limited companies are a popular business vessel.

A limited company has its own legal identity which is separate from the shareholders, who are the owners of the company. As an artificial person the company can own property, own shares in another company and enter into contracts in its own right. As the company cannot exercise these rights itself, directors will carry out these acts on behalf of the company, and in accordance with the wishes of the shareholders. This is the basic concept of a company limited by shares.

In many cases, the directors and the shareholders of smaller companies are the same people. This flexibility increases the popularity of limited companies for other purposes. For example, the tenants of long leasehold properties who want to own a share of the freehold of their property can use a limited company to acquire the freehold. Once the company acquires the freehold, the tenants, who are the shareholders, own an interest in the freehold through their ownership of the company.

Unlike a partnership, actions alone are not enough to form a limited company however; it can be just as straight forward. You submit an application through Companies House, pay a fee and you have a company. Listed below are fundamental points you must consider as part of the application:

• Name and Address – the name is usually one of the first components established by new businesses. There are some restrictions on what can be included in the name and you cannot use a name that is already registered with Companies House. You can check the Companies House Register in the link below to establish the availability of your chosen name: https://beta.companieshouse.gov.uk/company-name-availability. The company’s given address is known as the Registered Office. This is the address the company can be contacted at and proceedings can be served. Using a home address may not be advisable.
• Articles of Association – this is the company’s ‘rule book’. It sets the rules that directors and shareholders must comply with. You can create your own bespoke articles, or have a solicitor draft them for you. Alternatively, you can adopt the Model Articles (set out in the legislation), either as a starting point and amend them, or employ them in their original form. Articles cannot be in direct contravention of the Companies Act 2006, which is the main legislation that governs limited companies. It would be prudent to seek the advice of a solicitor if you require bespoke article, to avoid contravention.

Bespoke articles drafted from scratch can be costly so many small businesses either adopt the Model Articles in their original form, or use them as a starting point and amend them according to the intentions of the company.

• Directors – directors are responsible for the day-to-day management of the company, on behalf of the shareholders. Directors must act within their powers and promote the success of the company. Shareholder approval for certain decisions must be obtained by the Directors, for decisions such as changes to the Articles of Association and the removal and appointment of directors.
• Shares and Shareholders – a company limited by shares, must have at least one shareholder. When registering a company you will need to provide a Statement of Capital, which sets out details such as the number of shares and the name and address of the original shareholders. The shares must have a fixed nominal value, which is the minimum that must be paid to own the share. For limited companies this is usually around £1.00. If the company becomes insolvent, your liability as an individual shareholder is limited to that £1.00.

A limited company can raise money through issuing shares. Unlike public limited companies, a limited company cannot offer shares to the general public. The opportunity to raise finance is therefore less available for limited companies, however the purpose of holding shares in a limited company is to benefit from a financial return in dividends, and to make fundamental company decisions through the voting rights.

The shareholders have ultimate control over the company, which they exercise through their right to vote. It is usual for a limited company to issue ‘ordinary shares’ as they carry the right to vote and receive a dividend. This is usually what shareholders of small limited companies are looking to achieve.

• Continuing obligations and Privacy – a limited company is required to file annual accounts and legal charges at Companies House. This information is publicly accessible therefore a limited company does not have as much privacy as a partnership, but is less publicly exposed than a public limited company. Confirmation statements must also be filed at Companies House detailing the current shareholders, their shareholdings and the current directors. If changes are made to the articles of association, the accounting reference date or the share capital, this information must also be filed.

The majority of the clients that engage the corporate section of our Commercial Department are limited companies, or businesses looking to formally establish themselves as a limited company.

Martin Tolhurst Solicitors is able to commission the formation of your company through our external sources and advise on a range of company matters. Visit our Business Law section on the website to view the services we offer to support your business through each vital stage of its existence. Get in touch with our team today to discuss things further on 01474 546013.