A limited company is a recognised legal structure that enables a business to trade through. It is separate from the individuals who create and run it.
A limited company is recognised in law as a separate legal person. As a result, of such recognition, there are tax implications as with all legal structures in the UK. Unlike a UK individual, a limited company is not subject to income tax; it is subject instead to corporation tax.
If an individual wishes to form a limited company it needs to be registered at Companies House where in the UK such companies are listed and records are maintained.
Although not an individual a company can be alive, commonly noted at Companies House as “live”. It can also be not at some point any longer be alive (or if you like dead), commonly noted at Companies House as “dissolved”.
Alternative states of existence may also exist when insolvency procedures are introduced due to a company either being closed down or some attempt made to rescue it from a financial crisis. The most common state when a company is making use of the insolvency procedures under the Insolvency Act 1986 is that of liquidation. Liquidation can be either solvent or insolvent depending on the company’s circumstances.
A company cannot run itself so the starting point is the role of its individuals.
In order for a company to be born individuals are needed run and own it. For most limited companies the individuals that run it are the directors and those that own it are the shareholders. However, it can instead be limited by guarantee. Either way, the individuals that own a company are known as the Members and their details must under Section 113 of the Companies Act 2006 be retained in the Register of Members.
Ownership in the company is through individuals owning a share (or shares) in it.
The running of the company is operated through its directors appointed by the shareholders to have control of the day to day running of the company. In small owner managed companies the directors and shareholders are the same people.
For a company to be born its existence is brought about by subscribers who sign a document known as the Memorandum of Association. The subscribers are signing up to accept that they will comply with the requirements of the Companies Act 2006 and agree to be members of the company with at least one share in it.
In addition to the Memorandum of Association, the rules and procedures that enable the company to operate are known as a document called the Articles of Association. This is in effect the constitution of the company that determines the rules governing how the company is to be run by its directors and shareholders.
Most limited companies have Articles known as the Modern Articles which is a set of rules that are standard. They can however be varied and made more restrictive at the consent of the Members.
For a company to operate its rules in the Articles that affect its constitution it needs to take decisions through what is known as Member Resolutions. That is not the same as day to day running which is operated through Board of Director Resolutions.
Such resolutions of the Members will include the appointment of a director or a voluntary resolution for winding up for liquidation in the event of company closure.
Liability limited for a company arises from Section 3 of the Companies Act 2006 which means the liability of shareholders is limited to any unpaid amount on their shares. This means that shareholders are not liable for company debts.
Where a company is limited by guarantee the liability is limited to the members’ guarantee that is provided when formed.
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