Private limited companies are often used by businesses to become more tax-efficient, raise capital and limit the owners/shareholder’s liability. One of the most common types of private limited company is limited by shares.
Definition of a private company limited by shares
A private company limited by shares is a company legal structure which gives the owner(s), also known as shareholders, limited liability and has to abide by private limited company tax regulations.
The Companies Act 2013 states that a company that is limited by shares must sell to pay off the company’s debt. They do not have to have to sell their personal assets to pay off the company’s debt.
Who gets shares
Shareholders are the ones that own shares. Typically, when someone invests in a company limited by shares, they are given a percentage of shares that match their investment, making them a shareholder.
When someone becomes a shareholder, they are entitled to vote on important decisions that affect the direction of the company. They are also entitled to receive a portion of any profits that the company generates.
How shares work
When shares are purchased, they are equal to a percentage of the business, for example, if a shareholder has 10 shares in a company that has 100 shares total, they own 10% of that company.
Once the shares are issued, that shareholder is entitled to vote on important decisions that affect the direction of the company. They are also entitled to receive a portion of any profits that the company generates.
If the shareholder wanted to sell the shares, they need to check the articles of association and shareholder’s agreement to see what is allowed and what isn’t when it comes to selling shares.
Difference between being limited by guarantee and limited by shares
You may have heard of a company limited by guarantee. Whilst this legal structure is similar to a company limited by shares there are some key differences.
The main difference is that a company limited by guarantee does not have share capital or any shareholders. Instead ‘members’ control the company, much the same way shareholders do in a company limited by shares.
This means that raising capital through the sale of shares is not possible with a company limited by guarantee, which can make raising much-needed funds more difficult.
How to start a private company limited by shares
The process for starting a private company limited by shares is relatively straightforward if you know what you’re doing. You have to register your company with Companies House which will require you to have a registered office address and a public service address for all officers of the company, which include secretaries, directors and PSCs as well as their ownership of shares and their voting rights.
You’ll also need to state your SIC code which defines what industry your company operates, submit details of all People with Significant Control and create your articles of association which outline the rules and regulations of the company and its officers.
You can choose to register your private company limited by shares directly with Companies House for £12, or you can choose to form your company with us for just £9.99.
We’ll register your company with Companies House, however, we’ve included tips and guides to help you with your application to make sure it’s completed correctly, plus, our expert customer support team are on hand to answer any questions you might have.
We also have a range of company formation bundles, other than our £9.99 one, which includes several different services that you’ll need to make running your company legally compliant and much easier.
Check out all our company formation bundles below.