Special rules for public limited company

It is very common for companies to upgrade trading status from a private limited company to a public limited company. For this reason, there are special rules for a public limited company (PLC) to comply.

Payment for share capital

  1. The original subscribers to a public limited company’s memorandum are required to pay cash for their shares.
  2. At least 25% of the nominal value and the whole of any premium on shares in a public limited company must be paid on allotment.
  3. A public limited company cannot accept an undertaking to do work or perform services as consideration for the allotment of shares.
  4. A public limited company can accept the transfer of assets to the company as full or part (subject to the 25% limit) payment for the allotment of shares. However, any undertaking to transfer those assets to the company must be performed within five years of the allotment. Furthermore, the company must take steps to satisfy itself that the value of the assets transferred to the company is accurate by obtaining an expert’s valuation and report.

Pre-emption rights on the allotment of shares

Generally, a public limited company must include the statutory pre-emption rights by a provision in its memorandum or articles. However, a public limited company (like a private company) can prevent the pre-emption rights applying by giving the directors the authority to allot shares in accordance with the Companies Act 2006.

Maintenance of capital

Ordinarily, the directors of a public limited company are obliged to convene an extraordinary general meeting if the company ‘s net assets are 50% or less of its called up share capital. Correspondingly, the meeting must be convened within 28 days of one of the directors becoming aware of this fact. And it must be held within 56 days. Obviously, the purpose of the meeting is for the problem to be considered. However, the Companies Act does not require the directors to take any definite steps to remedy the position.

Purchase own shares

Public limited company, like private limited company, can buy back their own shares and issue redeemable shares. However, public limited company cannot (unlike private companies) use it’s capital to purchase or redeem shares. However, a public company can use its profits for these purposes. In addition, the tax rules which, if the various conditions are complied with, allow the shareholder whose shares have been bought by the company to treat the purchase as a disposal for capital gains tax purposes. Rather than the receipt of a distribution attracting income tax liability, only apply to the shares in unquoted companies. However, It should be remembered that a public limited company will not necessarily have a listing on the Stock Exchange.

Financial assistance for the acquisition of shares and loans to directors

The rules prohibiting companies from providing financial assistance for the purchase of their own shares are more stringent. Comparatively, in the case of public limited company than in the case of private limited company. Similarly, the rules dealing with loans to directors are more stringent in the case of loans to directors of public limited company as laid down by the Companies Act.

Distribution of profits

In addition to the general rules restricting the funds from which companies can make distributions, public limited company is only permitted to make a distribution if their net assets are not, as a result of the distribution, reduced below the combined total of their called up share capital and ‘undistributed reserves.

Accounting requirements

The provisions which permit ‘small’ and ‘medium sized’ companies to file less detailed accounts with the Registrar of Companies do not apply to public limited company. They also cannot qualify as dormant company. Which would lead them to be able to dispense with auditors. A public limited company must deliver audited company accounts to Companies House.

Age of directors

A public limited company may not appoint a person aged 70 and above to be a director unless the appointment is approved by the company in general meeting, following special notice (giving the age of the director) of such resolution. When a director of a public limited company reaches the age of 70, he must retire unless the company in general meeting votes to retain him. Again, special notice must be given of any such resolution.

Written resolutions

The Companies Act which read the members of private limited company can take decisions by written resolutions rather than passing resolutions at general meetings. This does not apply to public limited company.

VAT and corporation tax

VAT and corporation tax is two different taxes administered by HM Revenue and Customs.

Your limited company is legally required to pay corporation tax if your company has made a profit and submit your corporation tax return with HM Revenue and Customs (HMRC).

If your limited company is registered for VAT with HMRC then your company is legally required to charge VAT to your customers and submit VAT returns to HMRC.

VAT

Let say, your company is selling children clothing, the applicable VAT rate is zero percent, your price for a pair of child’s trouser is £20 and the VAT rate for children’s clothing is zero percent. Your customer will pay you £20.

If your are selling website coding services, you would charge a standard VAT rate of 20% to your customers. Say, your project fee is £1000 and your invoice to your customer would be £1000 + 20% VAT and the final invoice price is £1200. The £200 collected is VAT. This amount is called output tax.

The £200 belongs to HMRC. Your company is technically collecting the VAT on behalf of HMRC. You report this output tax collection in your VAT return.

Corporation tax

Corporation tax is payable if your company has made a profit only. Let use the website coding services business to illustrate how corporation tax is computed. Let say, your company only have one sale that is £1000 + 20% VAT equal to £1200.

When preparing your company account, you book only £1000 as your sale not the whole £1200 because the £200 of VAT belongs to HRMC and it is not your earning. Then you deduct any expenses you incurred to deliver the website coding services, say stationery cost of £150 (excluding VAT). Your profit is £850 (£1000 less £150). The current corporation tax rate is 20%, your corporation tax liability would be £170. Your company would report this tax liability in your corporation tax return called CT600 and submit it to HMRC.

HMRC published the current corporation tax rates .

No double counting of taxes

As you can see from the illustration above, your company would not pay double taxes on your business income. You collect VAT on behalf of HMRC and it excluded from your corporation tax computation.

Company incorporation documents

Company incorporation documents required to register a limited company with Companies House in the United Kingdom are as follows.

Memorandum of Association

One of the company incorporation documents is the memorandum of association. It is a form of contract with the world in general. It states:

  • Your company’s name and registered office address.
  • Your company’s objective and it’s powers.
  • Shareholders liability is limited.
  • The share capital and classes of shares and nominal value of each share.
  • The names and address of your original subscribers (shareholders). And number of shares issued to your subscribers.

Articles of Association

Another incorporation document is the Articles of association. It sets out the regulations governing your company’s internal affairs such as how shares will be allocated. Who is your directors and secretary. How your meetings will be governed. Subsequently, any changes can only be made with 75% of voting rights obtained.

Statement of first Directors and Secretary and Intended situation of Registered Office

The third document is the statement of first directors and secretary and intended situation of registered office. It states the prescribed details of your first directors and company secretary and your registered office.

On the same note, the appointment of company secretary is optional unless you are a public limited company. Then you must have a company secretary. Your company secretary must have the relevant skills and qualifications to hold the position. For example, he/she must be a member of the Institute of Chartered Accountants in England and Wales (ICAEW).

Declaration of Compliance

Your director or sectary named in the statement of first directors and secretary to make the declaration of compliance with the requirements on application for registration of a company.

Documents no longer needed

Subsequent to the implementation of the Companies Act 2006, only the memorandum and articles of associations are required for new company incorporation. In short, the statement of first directors and secretary and intended situation registered office plus statement of compliance are no longer needed.

Company registration with Companies House

Before anything else, use the company name availability checker to check your company desired name whether it is available or already taken. Also, make sure your desired company name is not too similar to company names already on the register. This is to avoid Companies House return your incorporation documents for amendments. Thus, this would expedite your company incorporation.

You must also complete and include the Companies House form IN01 with incorporation documents for Companies House.

Certificate of incorporation

Companies House would process your company incorporation documents. Consequently, they will issue certificate of incorporation once your company is successfully incorporated.

You would need your incorporation documents to open a business bank account. Your bank needs them.

Registered office for Limited Liability Partnership

Registered office for your limited liability partnership (LLP) must be a physical location. Companies House does not accept P O BOX address as a valid registered office address.

Both HM Revenue and customs and Companies House send reminders and letters to your registered office. This includes legal notices.

Your registered office address need not be a place where you run your business. Some businesses use their accountants’ office as their registered office so that their statutory mails can be dealt with promptly.

If you no longer able to access to mails sent to your registered office address, it is time to change it. You must submit the form LL AD01 to Companies House.

Companies House will strike off your LLP if they received mails sent to your registered office was returned to sender. In other words, their letters were unable to reach out to your LLP partners. Thus, it is imperative that you have a valid registered office address at all times. If you move office, remember to change your registered office with Companies House within 14 days.

Another thing is, remember to renew your registered office address service if you are using a service provider. The provider usually returns your LLP mails to sender if your service has expired with them.

Limited liability partnership registered office location

Generally, If your Limited Liability Partnership is registered with Companies House in England then your registered office must be situated in England.

For instance, your LLP has been the original registered office as only being situated in Wales then your registered office cannot be situated outside of Wales.

Likewise, If your LLP is registered with Companies House in Scotland, your registered office must be situated in Scotland.

Similarly, you must always use a registered address situated in Northern Ireland if your LLP is originally registered in Northern Ireland .

Contact us if you require help with updating your registered office with Companies House.

VAT adjustment for private use

VAT adjustment for private use is to be made when calculating your VAT payable to or refundable from HM Revenue and Customs (HMRC). The rule for claiming all VAT input tax paid on your business expenses are that the expenses must be incurred solely exclusively for your business.

The VAT input tax on the private use cannot be reclaimed and therefore VAT adjustment for private use must be made in your VAT return.

An example of this would be telephone charges where the business is run from home. If a telephone bill was received for £100.00 plus VAT, one third of this would be considered private use. Accordingly, one third of the VAT input tax cannot be reclaimed from HM Revenue and Customs.

The easiest way to account for VAT adjustment for private use is to reclaim all the input tax in the VAT records and when preparing your VAT return make a deduction from the total input tax, disallowing for the private use proportion of the tax that the business is not entitled to reclaim. Do keep a clear record of how the disallowed amounts are calculated. HMRC may ask for the breakdown.

Seek accountants help or contact HMRC directly if you have any questions about VAT return compliance.

Avoid LLP late filing penalty

Avoid LLP late filing penalty by submitting your LLP accounts with Companies House on time.

Your LLP’s accounts filing deadline

Companies House website publishes your LLP’s accounts filing deadlines. The filing deadline is nine months after your accounting reference date. The accounting reference date is your LLP’s year end date.

If you do not remember your LLP’s account filing deadlines, you may contact Companies House directly or ask your accountants.

Mark in your diary or calendar to remind you in good time of your LLP’s accounts filing deadlines and also factor in the time to gather all the information and accounting records for your accountants to prepare your LLP accounts.

Reminders from Companies House

Companies House send reminders to your LLP’s registered office address to remind you of your LLP ‘s accounts is due. It is important that you can access to mails send to your registered office address.

If you are no longer able to access mails sent to your LLP’s registered office, it is time to change that address to a new registered office address. You must inform Companies House of the change.

Send LLP accounts by post

Allow enough time to ensure that your LLP accounts reach Companies House before the filing due date. If your filing deadline expires on a Sunday or Bank Holiday, the law still requires accounts to be filed by the due date.

If you are using UK post office or Royal mail service, please note that First-class stamp does not guarantee next day delivery, so please consider guaranteed methods of delivery to ensure your accounts arrive on time. Your LLP is liable to pay late filing penalty even if your accounts is delayed by the post service.

Alternatively, seek accountants help with your LLP accounts.

Starting a business guide

Starting a business guide to help you to get started with your business.

Starting a business is an exciting journey to embark on and it gives you a sense of total freedom. You tell yourself what to do and you are in control of your business and your time.

Here are the questions to help you get started with your business.

Step 1 : What business structure is suitable for your business?

Choosing the right form of business structure when starting out your business is important. Considerations should include the legal, tax, and business administration aspects of the legal entity you are going to use.

  • Sole Trader or Limited company – suitable for one man business
  • Conventional Partnership or Limited Liability Partnership – if more than one person jointly interested in business

If you decided to use a limited company for your business, you may incorporate your company directly with Companies House or use an accountant’s service. Your company registration is usually can be completed within one business day.

Step 2: How are you going to finance your business startup?

Financing your business is another important thing in starting your business. The startup capital required is dependent on your business.

For example, if you can use your personal computer for the business you may not need to buy new computer equipment.

However, if your business required you to have an office then obviously bigger sum of startup capital is required as signing up for serviced office lease required at least 3 months rent deposit and 3 months rent in advance. Some commercial property agents may willing to negotiate the lease terms but you still have to prove that you are capable of paying the office rent.

You may consider to use own cash/savings, loans from friends and family and you may sell your surplus personal assets for cash.

Borrow from banks and financial institution is another option. You will need to prepare a business plan to outline your business commercial viability.

Step 3: Who can help your business

Accountants can assist you to setup your accounting records system right from the beginning and advise on your business related financial matters.

Solicitors could advise you on your business contracts and preparing legal documents for you.

Business Link. It is a UK government supported organisation that provides useful information to businesses of all sizes.

Step 4: How much would it costs? – Accountants’ fee

Traditionally accountants charge their fee by the hour. There are also accountants offer fixed fee accounting services.

Whether fixed fee or charge by the hour, ask for couple of quotes to compare. Understand what included in the quote and what is extras.

If you intend to use limited company for business, it may be a good idea to seek accountants’ advice as soon as your company have been setup.

Step 5: Do you have to register for VAT?

You are not required to register for VAT if your sales are below the VAT registration threshold or if you only make “exempt” or “out of scope” VAT products and services.

However, you may opt to register for VAT voluntarily if it is beneficial to your business.

Step 6: Should you rent an office or work from home?

Many startup businesses are run from home. There are benefits working from home.

May be, consider taking up an office when your business can take care of itself – start generating sales and have sufficient cash.

Now that you are ready to start your own business, may good luck and good fortune be yours way. If you require any help please do not hesitate to contact us.

Limited company or sole trader

The advantages and disadvantages of whether to use a limited company or sole trader to start a business is important consideration.

First of all, there are two types of limited company. A private limited company and a public limited company. Registration of a private limited company is relatively straight forward. You only require one person to setup the company. You can be the director and shareholder of the company. In addition, your share capital can be as little as £1. That’s all you need to get started.

On the other hands, incorporation of a public limited company has more legal administration requirements to it such as you cannot trade until you get a trading certificate. Furthermore, a public limited company requires minimum share capital of £50,000. It is a bit expensive.

Whereas, comparing to setting up a sole trader business, the setup is more simpler. You only need to register your business with HM Revenue and Customs. Then you are good to go.

Limited liability

In terms of business liability, your company shoulders all the liability as opposed to the person running the business. This is because the company and the owner of the company are considered a separate legal entity. Your liability is limited to the amount you invested in the share capital of your company. This includes any guarantees you gave when raising finance for your business.

For example, if you invested £10,000 into your company as share capital and your lost would be limited to this amount in the event of your business failed. In other words, your maximum lost would be £10,000. That’s it.

As with a sole trader or proprietorship, you are exposed to unlimited liability. In other words, your personal assets can be auctioned to pay off your business debts if your business fail.

For instance, when your sole proprietorship business failed and you have a business debt of £100,000. You would have to satisfy this debt using your personal assets no matter what. You may risk being sued bankrupt if you cannot settle the debts quickly. In this respect, sole proprietorship is a bit risky compared to trading using a company. There is no safety net. Basically you can lose everything at once.

Continuity

Moreover, trading as limited company also provides continuity of the business. The ownership of the company can be transferred easily. In this circumstance, you only have to transfer your share to your next of kin by filing the relevant Companies House forms to that effect.

Whereas for sole proprietorship business normally ceases when the business owner wants to retire or death. However, there may be away to keep your sole proprietorship business continuity by incorporation.

Company Law

Besides, the Companies Act 2006 have made the requirement to appoint a company secretary for a private limited company is optional. This means that a single person can setup a limited company by himself as discussed above. You can be the sole director and also the sole shareholder of your company if you wish. Except that you must not be an undischarged bankrupt or disqualified by a court from holding a directorship.

On the other hands, as a sole trader you do not need to comply with the company law. Less hassle for your business.

Stability

Also, many financial institutions, banks and suppliers viewed limited company as being a form of more stable business entity compared to a sole trader. This is partly because the company accounts, shareholders and directors details are available for public inspection independently at Companies House. This provides more reliable information to creditors about your company history.

On top of that limited company must follows company law when comes to filing Companies House forms and accounts with the Registrar. There is a set of standards maintained.

Administration

For administration purpose, limited company must deliver confirmation statement and company accounts to Companies House every year. Also, you must maintain statutory books for your company. This includes notify Companies House when there is a changes in the registered office or director etc. You can notify Companies House by filing the correct forms online or on paper. You would require your authentication code to file online. The authentication code is the electronic equivalent of your director and secretary’s signature. Keep it safe.

Additionally failure to fulfill the legal obligations mentioned above, your director is risk being prosecuted and are subject to fines. There is a late filing penalty for delay in filing your accounts to Companies House too. However, Companies House send reminders to your registered office to help you (as the director) to comply with the law. Just make sure your registered office address is up to date. Do not worry too much.

To top it up, your company must submit corporation tax return with HM Revenue and Customs. Your accounts must comply with the Companies Act. In some instances, you must submit audited accounts.

For sole proprietorship, you only required to file self assessment return with HM Revenue and Customs. And the accounts are also much simpler compared to that of a company accounts. The administrative side of thing is relatively simple.

Conclusion

It seems that whether to use a limited company or sole trader to start a business, a company is more attractive. It gives professional image and project stability to the public. Most importantly, using a company to trade limit your liability and debts in the event of winding up.

Seek advice on complex tax affairs

However, if you have complex tax affairs seek advice from the specialist tax advisers. They would assess your personal tax affairs thoroughly and present you to the best solution that would minimize your tax liability overall.

For example, whether to buy an asset under your personal name or under your company name; or you have income from oversea or inheriting assets all these may have an impact on your overall tax liability. For this reason, you would only gain by getting a specialist tax advice and nothing to lose.

Good luck with your business adventure.

Redeem shares

Redeem shares is allowed if your company have issued redeemable shares with the agreement that your company will buy them back at the option of your company or your shareholder after a certain period of time.

You can only redeem paid up redeemable shares.

Your company directors may, if authorized either by your company’s articles or by a resolution, set the terms of your shares redemption.

The terms of redemption of shares must be stated in your company’s articles.

Your company must submit the Companies House form SH02 together with a statement of capital to the Registrar of Companies within a month of your redemption.

The form SH02 can also be used to give notice of consolidation, sub-division and re-conversion of stock into shares.

The changes in your shares capital as a result of your shares redemption must be included in your confirmation statement.

Register of directors interest in shares and debentures

Your company must keep and maintain a Register of directors’ interest in shares and debentures. This applies to every company registered with Companies House in the United Kingdom.

Generally, the register of directors’ interest in shares and debentures is a record of the extent to which your directors have invested personal wealth in the company and their dealing in securities. Why you must keep and maintain this register? Because your other shareholders would be interested to know.

Definition of interest

The meaning of interest in the context under the UK company law are:

  • Interest under a trust.
  • Interest owned by a company in which the director owns one-third of the voting rights.
  • Entitlement to exercise any rights in shares.

For this purpose, the interests of your directors’ spouses and their infant children and your shadow directors are included. Consequently, your register must keep both acquisitions and disposals of by sale or assignment. In addition, if your director has to the rights to exercise share options, this as well.

Location of your the register of directors interest in shares and debentures

Usually, the Register of directors’ interest in shares and debentures is kept your company’s registered office address. However, if your register is kept at a different address, your company must notify the Registrar of Companies of this. In this case, you must submit the Companies House form AD02. This address is called the SAIL address.

On the other hand, the register must be made available at your Annual General Meeting. Even though it is not mandatory for your company to disclose whom is the ultimate controlling party of your company. However, you must disclose the person with significant control or influence to Companies House. You must include this information in your Confirmation Statement.

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