What is a limited company?

In this article we aim to give you an explanation of the Statutory responsibilities for Limited companies.

Limited companies are separate legal entities that are formed to run a business. The directors of the company are responsible for any legal and financial decisions the company makes. The company’s assets and liabilities are completely separate from your own personal finances.

Limited liability

As the limited company is separate from its owners in law, that means it:

• Can enter into contracts in its own name, including employing staff
• Is responsible for its own actions, and can sue and be sued
• Has the legal right to money it makes from sales and can keep its profits
• Is responsible for paying its own debts and liabilities

This is the major reason why a limited company is a popular structure for a small business. The owners of the company are protected by ‘limited liability’ so unless there’s fraud or other serious wrongdoing the amount they have to lose if the company fails is strictly limited. If the company cannot meet its debts or liabilities, the owners usually risk losing only:

• For shareholders, the nominal value of the shares they hold;
• The amount of any guarantee (for members of companies limited by guarantee);
• Any amounts they’ve already invested into the limited company; and
• The amount of any personal guarantee they’ve made to the company.

Statutory obligations

A company’s financial year is usually a 12 month period for which accounts are prepared. Every company must prepare annual accounts that report on the performance and activities of the company during the financial year. The financial year starts on the day after the previous financial year ended or, in the case of a new company, on the day of incorporation.

A company must also prepare corporation tax return within 12 months of the end of its accounting period.

Every company, whether or not they are trading, must keep accounting records. As a minimum these must contain:

• entries showing all money received and expended by the company
• a record of the assets and liabilities of the company

A company must keep its accounting records at its registered office address or a place that the directors think suitable. The records must be open to inspection by the company’s officers at all times. Private companies must keep accounting records for 3 years from the date they were made.

The directors of every company must prepare and file annual accounts no later than nine months and one day after the company’s accounting period ends. These are called individual accounts. Generally, accounts must include:

• a profit and loss account
• a balance sheet signed by a director on behalf of the board and the printed name of that director
• notes to the accounts
• group accounts (if appropriate)
• a directors’ report signed by a secretary or director and their printed name.

However, there are exceptions to the above rules depending on whether the company is small or micro company.

The company’s board of directors must approve the accounts before they send them to the company’s members:

Remember all companies must file their accounts at Companies House by the due dates. Failure to file the company accounts by the due dates will result in a penalty for late filing of accounts.