What is Limited Liability?
What is limited liability? – the exposure financially that a shareholder remains liable for the debts of the company.
For this, therefore, the business remains required to have been incorporated at Companies House, attaining then the status of:-
- Private limited company (LTD);
- limited liability partnership (LLP); or
- public limited company (PLC).
When incorporated, the business then attains a separate legal entity. Therefore, finances and assets are separate from the owners (Shareholders).
So, in the event of an action to recover funds etc. from the company, they remain separate from the original owner.
Company Directors Liability in a Limited Company
Limited liability protects directors and stakeholders. However, certain circumstances expose directors to personal liability, including:
- Continuing to trade, notwithstanding knowing the business is insolvent and worsening the company creditors position;
- paying themselves, generating an overdrawn director’s loan;
- appropriating funds fraudulently to pay company creditors.
- signing a personal guarantee for the company;
- disposing of company assets at less than market value;
Benefits of a Limited Liability Company?
Several benefits exist in forming and operating a limited liability company formed in England and Wales.
Company debts are not the liability of individuals.
One of the main purposes owners prefer to incorporate their business remains to avoid a limited company’s debts.
So, allowing the directors to trade without placing cash, personal property and additional assets at risk. However, directors must perform their duties and responsibilities to rely on this.
Read further on Director’s liabilities.
Limited companies remain taxed at 19% on profit, and no personal tax with sole traders and partnerships.
Directors remuneration may pay the minimum personal allowance level, top up with a dividend, provided they are shareholders, have sufficient profit to pay a dividend and complete the necessary process. Dividends remain taxed at a lower rate. Therefore, any tax liabilities remain lower.
As a limited liability company acts as a separate legal entity from its owners, the company will continue to exist beyond its members’ lives, especially if you experience long-term health issues. Therefore, they may afford employees of the company more secure.
Team member buy-in
Private Limited Companies may offer key employees shares to lock their support. Therefore, supporting team member motivation and implement a financial bonus. Having a vested interest in the company’s performance ensures team member commitment.
Company name Protection
Registering a limited liability company requires a trading name. Company names can become valuable assets. Registering your company’s name at Companies House stops others trading with the same name, though you should also register other similar names to protect your position as your company grows.
The Team at HBG Advisory.