Incorporating a limited company in the UK requires knowledge of the law, duties and responsibilities of the directors and those of the shareholders. The difference between those roles is significant even if both posts are carried by the same person. Rules regulating this area of corporate law should be explored well in advance of setting up a limited company to ensure most effective start on the market.
Limited company is one of the most popular form of caring out business activities in the UK. Favourable taxation, limited number of formalities and number of other opportunities result that each year more and more limited companies are incorporated. However, to benefit the most from the given opportunities it is important to become familiar with current regulations and the difference between a director and a shareholder of the Ltd company.
Incorporating – registering limited company
To be able to create a limited company it must have at least one director and one shareholders, and therefore, at least one share. The company is registered with the Companies House, a government body maintaining a database with information on all companies. It is possible to register the business as a limited company with an aid of a third party but for such services we would be ready to pay a premium.
Directors and shareholders
As it is a case with many newly registered companies the roles of directors and shareholders are carried by the same person. On the other hand the company can have number directors and shareholders. The exact structure of the company can differ greatly but importantly the difference between directors and shareholders should be explored before incorporating the business. You must know the rights and the responsibilities for each role before taking them on.
Who can be a shareholder in a Ltd company
A shareholder in a limited company in UK can by any person or entity. If it is a person, then it makes no difference if they are already involved in any other business activities or not. For the commercial entities only, other limited companies (Ltd) or public limited companies (Plc) can be shareholders.
Who can be a director in a Ltd company
Requirements for the directors of limited companies are like those of the shareholders. This position can be kept by a person or commercial entity, however, the person must be over 16 years old.
Appointing a director
Shareholders, also known as members of in the case of the founding members subscribers, appoint directors and regulate their rights and powers. Shareholders also keep the right to remove the director in situations where there was a breach of law, abuse of power or the director proves to be incompetent. Dismissing the director can be caused by any breach of the contract signed between the shareholders and the director.
Expectations from directors
A person or commercial entity appointed to act as a director of a limited company has responsibilities to manage the company in accordance with law, Articles of Association, lawfully and ethically pursuant to the Companies Act 2006. Director acts within the rights and powers determined by the shareholders and Articles of Association. It is expected that the directors will actively promote the business and make such decisions which will lead to growth and profits for the company but also benefit the shareholders.
Naturally on the directors’ shoulders rests responsibility of diligent and timely dealing with tax affairs. By law the director is required to submit true and fair annual account, annual returns and company tax returns and can be held legally responsible if fails to meet statutory deadlines. Therefore, it is paramount that the director has a full knowledge of the law and regulations in this area.
People who are shareholders are liable to the amount of the nominal value of the shares under their control. They reserve the right to make key decisions such as name of business, structure of the company, investments, appointing external audits. Rights to the vote, capital and dividends are directly proportionate to the value of shares they control
Similarly, to the responsibilities profits are linked to the value of the shares under control. They proportionality is applied when dividing profits accordingly to the value and type of shares owned. When the company is wound up, shareholders have a right to keep the company’s capital surplus, based on their shares.
When the accountant’s help is necessary
British Limited Companies can range from large corporations to one-person companies. It is the later that all the right and responsibilities, both directors and shareholders rest in the hands of the person who owns and manages the company. This can be particularly troublesome in the early days of the running a limited company and for this reason entrepreneurs choosing this legal structure for their business support themselves with aid of professional accountancy services such ours.
Before incorporating a company
It is worth to emphasize the importance of knowing all the rights and responsibilities of directors and shareholders before even incorporating the ltd company. The planning stage is crucial to provide most efficient structure for growth while avoiding failing with the tax regulation and potential breach of law.