What is a company limited by shares?

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Can anybody tell me what a company limited by shares is? I am new to the UK, having recently gained residency, and now I am planning to start a business. However, I have no knowledge of how business works in the UK. It appears that a company limited by shares is the most popular type of company, but I have not got a great explanation as to what that is. Can you please advise me what defines a company limited by shares?

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A limited by shares company is an incorporated business structure that exists as a separate legal ‘individual’ and provides limited liability to its owners (shareholders). Limited liability means that the financial responsibility of shareholders is limited to what they invest in the business - beyond that, the company is responsible for its own debts.

In addition to limited liability, a company limited by shares is incredibly popular for many reasons:

  1. Ideal for anyone who wants to make a profit - all surplus income can be kept by the shareholders.
  2. It has a share structure. This means that the company is divided into portions called ‘shares’. Shareholders buy one or more shares, each of which represents a percentage of the business. The profit entitlement and power of each shareholder is determined by the number of shares owned.
  3. Companies pay 20% Corporation Tax on profits - self-employed individuals and people who own partnerships have to pay Income Tax on profits, which can be as high as 45%.
  4. This type of structure is impressive and can boost the appeal of a business.
  5. Ownership is flexible - you can register a limited company as a sole shareholder, or you can own a company with other people.
  6. Shares can be sold to other people in exchange for capital investment.
  7. You can own a limited by shares company and manage it yourself (as a ‘director’), or you can appoint other people as directors and still receive income from your shares.

Other popular types of business structures in the UK include: limited by guarantee companies (more suited to non-profits), limited liability partnerships (same as traditional partnerships with two or more people, but with the added benefit of limited liability) and sole traders (self-employed individuals with unlimited liability for debts).

a year ago
 

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