What is limited liability? Limited liability is a type of legal protection for both shareholders and owners which helps prevent individuals from being held responsible for financial loss and debts.
Limited liability only applies to certain companies – typically those with ‘Ltd’ in their business name. To learn more about limited liability, continue reading.
Forms of Limited Liability in Business
While choosing a business structure for your company, you might come across different forms of limited liability in business in the UK – but what do they all mean?
Private Limited Company (Ltd)
A private limited company is a separate legal entity from any owners. Private limited companies aren’t able to publicly trade shares, and can only have up to 50 shareholders.
Being a private limited company is a common structure across the UK. By the end of 2023, over 95% of all corporate bodies on the total register were private limited companies.
Public Limited Company (PLC)
A public limited company is essentially managed by a group of directors but owned by shareholders – and it must have a share capital of at least £50,000.
Unlike private limited companies, they can legally sell shares to the public through the stock market. Individuals who buy shares in these public liability companies are classed as shareholders (while being overseen by a group of directors and the company’s CEO).
Limited Liability Partnership (LLP)
A limited liability partnership typically has more than two owners running the business together. All participating owners are required to sign important documents and follow set regulations. Additionally, they all must pay Income Tax on any earnings. However, they’ll be protected by limited liability.
Pros and Cons of Limited Liability Companies
Several advantages and disadvantages can come with using limited liability. However, there are more good than bad aspects to being a limited liability company. Let’s find out the main pros and cons.
Pros
- Your business name is trademarked.
- No personal liability.
- Future security for employees.
- Investment opportunities.
- Tax advantages.
- Company credibility.
Cons
- Must register with Companies House (which can come with a fee)
- Must inform Companies House if anything happens (for example, a director resigning)
- Might not be able to keep up with additional paperwork that comes with being a limited company
- Potential conflicts or disagreements between shareholders
How to Set Up a Limited Company
To set up a limited company, you will need to register with Companies House. There are several different steps to take before you can set your limited company up, such as:
- Checking if a limited company is right for you
- Deciding on a name for your business
- Choosing directors (and a company secretary if necessary)
- Choosing at least one shareholder or guarantor
- Finding people with significant control over the company
- Preparing key documents
- Checking which records will have to be kept
It’s only once you’ve completed these vital steps that you’re able to register your company, an official address, and choose a Standard Industrial Classification code (SIC).
Key Takeaways
- Limited liability in a business is all about reducing your exposure to financial risk
- There are only certain types of businesses that limited liability can apply to (private and public limited companies, and limited liability partnerships)
- All limited companies need to register with Companies House
Limited liability is a form of legal protection for shareholders and owners which prevents individuals from being held personally responsible for a company’s debts or financial losses.
Limited Liability vs Unlimited Liability
What are the key differences between limited liability and unlimited liability?
| Limited Liability | Unlimited Liability |
|---|---|
| Business structures, such as public limited companies, private limited companies, and limited liability partnerships, have limited liability | Business structures such as sole proprietorships and general partnerships have unlimited liability |
| Limited liability means that owners of the company are only liable for however much they’ve invested in a business | Unlimited liability means all owners are responsible for debts |
| Limited liability offers protection over the company owner’s personal assets | Unlimited liability could expose you to personal financial risk |
Do You Need Help Managing Your Accounts?
Before setting up a business and business structure, it’s important to talk to a specialised accountant about limited liability to decide which form of business would be the right one for you.
At LJS Accounting Services, we provide support for limited companies. It’s no secret that limited companies have additional paperwork and reporting requirements, which can take some time. You’ll be pleased to know that our team of professional accountants can assist you and take care of your accounts.
To find out more about our services, please get in touch with us today. We look forward to hearing from you soon.
Keli Evans, Director at LJS Accounting Services, excels in taxation and statutory accounts. With a focus on strong client relationships, she leads a diverse portfolio, overseeing vital financial aspects like VAT, payroll, pensions, and taxation with a holistic and committed approach.
