There are many people in the UK (and outside the UK) who are thinking about setting up a UK limited company. Some of them are sole traders who believe that a limited company will work better for them. What’s important to know is that there are three type of limited companies in the United Kingdom – a Community Interest Company, a Public Limited Company and a Private Limited Company. Community Interest Companies or CIC are typically used for community organizations while Public Limited Companies let owners sell shares to the public. If you are a contractor or a freelancer, your obvious choice is a private limited company.
Why UK Limited Company?
One of the greatest things about launching a UK limited company is the fact that they come with limited liability. In other words, shareholders that are part of the company are not personally liable for the debts created by the company. Of course, in most cases, by a shareholder, we mean the individual freelancer/contractor, but in some cases, a few members of the family or other people can own a private limited company.
So, a limited company is completely responsible for all the debts. This company has a bank account on its own and it can apply for loans and finance. Another thing that makes limited companies different than sole traders is the fact that they have to pay corporate taxes. On the other hand, sole traders must pay personal tax on their profits. But, as a limited company owner, you have to use a payroll system in order to pay employees (and yourself). Generally speaking, it’s a wise idea to hire an accounting company to handle these responsibilities on your behalf.
How to open a limited company
A limited company must have one or more company directors. Literally, any adult UK citizen can be a company director unless they were bankrupt for a certain period of time. You also need at least one shareholder. This shareholder must own 1 GBP. At the same time, the shareholder can be a director. When it comes to a company secretary, this is no longer a legal requirement as far as private limited companies are concerned.
There are three main documents that you have to submit when requesting an approval for your limited company in the UK. First of all, there is a certificate of incorporation. Look at this document as some sort of a birth certificate of the company which makes the company a legal entity. Next, you will need a memorandum of association. In this memorandum, you will include the official address of the company and the objectives of the company. Finally, there is Articles of Association. This document provides a description of the company structure and how it will be managed.
Anyone in the UK can form a limited company. But, if you want to accelerate things and make sure that you’ve got all the documents before submitting them, it’s a smart idea to hire a company formation agent.

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