What is a Company Limited by Shares?
A company limited by shares is a common type of legal structure used by businesses that aim to generate profit and distribute it to their shareholders. This structure is prevalent among private and family-run businesses.
Key Features
Shareholders:
Companies limited by shares have shareholders who own the company’s shares.
Shareholders’ liability is limited to the amount unpaid on their shares, providing financial protection in the event of insolvency.
Issuance of Shares:
Shares are initially issued upon incorporation and allotted to the company shareholders. Further shares can be issued and withdrawn throughout the course of business depending on the company’s requirements and ownership structure (i.e. 100 Ordinary £1 shares).
Shares can be given to multiple persons or companies to maximise tax efficiency and are used to distinguish control of the business.
Shareholders can buy, sell, or transfer their shares, which allows for flexibility in ownership and profit distribution.
Profit Distribution:
Companies limited by shares aim to generate profit, which can be distributed to shareholders in the form of dividends.
The amount of dividend each shareholder receives is proportional to the number of shares they own and rights associated with their specific shareholding.
Governance:
The governance of a company limited by shares is typically outlined in its Articles of Association.
Directors are responsible for running the company and making decisions, while shareholders have voting rights based on the number of shares they hold.
An owner of a company can be both sole director and shareholder, or this may be split between multiple persons or companies depending on the organisations structure and what’s most beneficial.
Registration and Compliance:
Companies limited by shares must be registered at Companies House and comply with the Companies Act 2006. They must maintain a Register of Members, which includes all shareholders.
Entitlement to Final Funds:
In the event of the company being wound up, any remaining funds after settling all debts and liabilities are distributed among the shareholders.
The distribution is based on the number of shares each shareholder owns and shareholders can in certain cases benefit from reliefs upon dissolution such as reduced tax rates.
Taxation:
A company limited by shares is subject to corporation tax, VAT, and payroll taxes. They must comply with all relevant tax regulations and ensure timely submission of tax returns and payments.
Dividends paid to shareholders are subject to dividend tax.
Benefits
Limited Liability:
Shareholders’ liability is limited to the amount unpaid on their shares, providing financial protection in the event of insolvency.
Profit Distribution:
Companies limited by shares can distribute profits to shareholders in the form of dividends, providing a return on investment.
Flexibility:
The structure allows for flexibility in ownership and profit distribution, making it suitable for small family-run businesses.
Tax Efficiency:
Distributing profits through dividends can be more tax-efficient compared to taking a salary, especially for small companies.
Examples
Private Companies:
Many small and medium-sized enterprises (SMEs) use the company limited by shares structure to distribute profits efficiently and manage ownership among a small group of shareholders.
Family Businesses:
Family-run businesses often find this structure beneficial for managing ownership and distributing profits within the family.
Green Accountancy works with many Companies Limited By Shares. Key services include Company Accounts and Tax, VAT, Management Accounts, Company Secretarial Matters and Payroll. Our mission is to help profit-driven entities have well-managed finance, meet their reporting responsibilities, and improve tax efficiency. To find out more, do book a free online meeting.
