Many people wonder why should they start a private limited company, as such a venture would often involve additional expenses and administrative work. In the case of a sole proprietorship business, these expenses are very nominal.
The deciding factor for forming such a company is your financial liability as an individual. In case you were the sole proprietor and the business flops for whatever reason, you alone are liable to clearing all your debts. When you have large debts that you are unable to pay, you are exposed to the risk of personal bankruptcy. The formation of a limited company provides protection against such an eventuality.
By itself, a limited company being an entity is accountable for the actions it takes. The funds of such a company are totally detached from those of the people owning it. There can be one or additional shareholders in private limited companies, though the owners can’t sell the shares to the public, or trade them through the stock market. Only public limited companies can do that.
As long as you do not trade in a false or reckless manner, your risk of losing money as the director of the limited company is only to the extent of the money you may have invested in that company. Nonetheless, if you availed loans from banks against personal guarantee, you will be held liable for paying those loans.
Having such a company may, to some extent, enhance your credibility to prospective clients.
How to start one?
You may hire the services of an agent, advocate or accountant who would do it for you and charge a little fee. You’ll need to give some primary information for doing the needful, and sign a couple of papers. Else, you may visit the Companies House online and incorporate your company.
You can also buy a ready to use name for a limited company. However, when you wish to setup an absolutely fresh one, it is obligatory for you to submit the articles of association, the memorandum of articles, along with a fulfilled IN01 form to the Companies House.
A memorandum of association contains the details pertaining to the name of the company, the nature of its business, and the address of its registered office. All the directors need to sign it in the presence of at least one witness. The Companies House sends all its letters, notices, and reminders to the registered office of the company. The articles of association spell out the rules and regulations for running the company.
Responsibilities of the directors of the company
A private limited company should essentially have one director, who may also hold some shares of the company. People charged with bankruptcy and those below sixteen years of age can’t be appointed as directors.
It’s no more obligatory for these companies to employ a company secretary, as the directors of a private limited company are accountable for keeping the Companies House informed of any amendments in the management or structure of their company.