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How to set up a limited company in 2021 (formation, liability, taxes)
What is a limited?
The Limited Company by Shares - mostly as a Limited or just Ltd. abbreviated - is a classic corporation in which the share capital is broken down into shares.
This is the most frequently chosen legal form in Great Britain, which is also used here in Germany by some companies.
If you go into detail, you can divide it into the following sub-forms:
- Private Limited Company by Shares (Ltd.)
- Private Limited Company by Guarantee
- Private Unlimited Company
- Public Limited Company (PLC)
The main characteristics of the Limited by Shares that this post is about are as follows:
- One UK pound share capital required
- no notarial certification of the partnership agreement required
- Entry in the British commercial register (also without notarization)
- limited liability
How to set up a limited company
The establishment is simple and complicated at the same time. So that you have as few problems as possible with this, you should look for an agency that specializes in this topic and ask for help at an early stage.
No notarization is required to set up a limited company in the UK. The required minimum share capital is one British pound.
The company must also be registered in the English commercial register, the companies house. An office address is required for this, which the agency will provide you with. So you don't have to rent an office in the UK.
If you want to run your company from Germany, it must also be entered in the German commercial register. A notarial certification is necessary for this, which entails additional costs.
When a social contract is drawn up, it is sufficient to write it in simple form. However, it must comply with UK law and be in English.
A special feature is the division of the share capital into shares. Ultimately, each shareholder can only be held liable for the amount that he has paid into the company.
The structure of the Limited
The structure is very flexible and only follows a few rules. It is important that the following three positions are occupied:
- Director (s) (comparable to the board of directors or a managing director)
- Shadeholder (s) (partner, shareholder, shareholder)
- company secretary (office not known in Germany, which is similar to a secretary)
The post of company secretary has not been mandatory since 2008 - it is still recommended. Since director and shadeholder can also be the same (natural or legal) person, it is now also possible to set up a limited company as an individual.
Open a business account for a limited company
Most German banks find it difficult when a business customer wants to open an account for a limited company.
The company headquarters abroad appear insecure to most financial institutions, sometimes even dubious and is the most common reason for a refusal. The fear of insolvency and the imminent Brexit is also causing many banks to refuse Limited founders a business account.
Conversely, this means for you: Plan enough time to find a bank that is also open to the legal form Limited.
The following overview will help you to find the right business account for your Limited:
Advantages and disadvantages of the Limited
If you are toying with the idea of setting up a limited company, you should definitely take a close look at the advantages and disadvantages that come with this legal form.
- simple and quick start-up process
- high flexibility
- low start-up costs
- Share capital of one pound (about 1.10 euros)
- Articles of association in simple written form without notarial certification
- Changes to the partnership agreement are very easy and possible at any time
- international reputation of the legal form
- international image for the company
- British law internally and German law externally
- pending complications from Brexit
- British office address ("registered office") is mandatory and costs additional money
- Notarial certification for entry in the German commercial register
- great effort in bookkeeping
- strict and double disclosure requirement
- Annual financial statements, articles of association, business report and other documents must always be presented in English
- special tax advisor required
- possibly negative influence on creditworthiness (Ltd. is not accepted everywhere in Germany)
Controlling a Limited
If your company is only active in Germany, it will also pay its taxes here. Specifically, these are:
- Corporation tax
- value added tax
- Business tax
It is crucial that you prepare your annual financial statements in accordance with British law despite paying tax to Germany. We therefore recommend that you look for a tax advisor who specializes in limited companies and who can give you professional assistance.
The Limited in Germany
The English name means that many founders wonder whether this legal form even exists in Germany or whether it can be founded in this country.
In principle, it is possible to run a limited company with a (secondary) seat or branch in Germany. However, this cannot be founded in Germany. If you choose this legal form, it must be founded in Great Britain and have a so-called "registered office" there, i.e. an official office address.
So that the founding in Germany is as unproblematic as possible and, at best, you have no worries later, many agencies have been founded that specialize in this topic.
They not only support you in the start-up process, but also provide you with an office address in Great Britain, for example. There are fees for these services that you must consider in your budget.
Limited vs. UG: Those are the differences
As mentioned above, the British Limited and the German UG (limited liability) are very similar. But there are also a few aspects that distinguish the two legal forms from each other.
The two biggest differences between Limited and UG (limited liability) are:
- British law vs. German law
- no notarial certification vs. notarial certification
Deutsche Limited after Brexit - what's next?
Once the UK is no longer a member of the EU, things will change for German limited companies.
There are still no binding regulations, but many experts agree: Brexit will mean the end of Limited with a branch in Germany - unless those involved manage to continue to guarantee the freedom of establishment in Great Britain.
Particularly problematic: If Great Britain says "No" to the freedom of establishment, it means for many German limited companies that they are treated like a GbR or OHG. And that in turn means that they have to be fully liable in the event of bankruptcy.
If you want to protect yourself against this, it is best to initiate restructuring as soon as possible and convert the Limited into a UG or GmbH, for example.
You can find more information on this topic in an overview from the Munich Chamber of Industry and Commerce.
Frequently asked questions about the Limited
The legal form Limited raises many questions.
We have answered the most frequently asked questions below.
Can I convert a Limited to a GmbH?
The developments within your company can always mean that restructuring is necessary.
Many founders, who have saved their share capital of 25,000 euros over time, decide to convert the company into a GmbH.
This process is quite possible, but - like any conversion from legal form A to legal form B - involves a lot of effort, discussions and costs.
This post will give you a first impression of what the conversion entails.
Which legal form corresponds to the Limited?
The Limited is an independent legal form that can also be chosen by German companies.
The German equivalent that is most similar to it is the UG. It also requires a low share capital, but nevertheless guarantees a limitation of liability.
Who is liable with a limited company?
All shareholders who have shares in the capital of the Limited are liable with their entrepreneurial property. However, private property remains untouched in the event of bankruptcy.
How is a Limited represented?
The corporate form is represented externally by the director or directors. This position is roughly equivalent to the German managing director or a board member.
Where do I have to register a Limited?
Every Limited must be registered in the UK Commercial Register.
However, if your company is primarily active in Germany, you must also have it entered in the commercial register in this country.
The name of a limited company - what do you have to consider?
When it comes to naming, you have all the freedom you can imagine.
The only requirement: The company name must contain the addition "Limited" or "Ltd.".
This translates into German as “limited liability”.
What is the abbreviation for Limited?
Limited itself can be understood as an abbreviation. Because the full name of this legal form is Limited Company by Shares.
If you like it shorter, you can simply use the name Ltd. use. This has long been established in German (business) language, so that everyone knows what is meant by it.
Is the Limited a partnership or a corporation?
The Limited is not a partnership, but a corporation.
It can be founded by both natural and legal persons.
Does the limited require a minimum capital?
Yes, a low minimum or share capital is required for the formation. This is one British pound, which is equivalent to around 1.10 euros.
The amount of share capital is one reason why Ltd. so often compared with the German UG.
Does a Limited have to pay sales tax?
If your company operates predominantly or entirely in Germany, it must also pay taxes in Germany. This also includes sales tax.
Is a limited company subject to the disclosure requirement?
The legal form Limited is subject to the strict British disclosure requirements. Important to know: both annual financial statements and business reports must be submitted in English.
In addition, financial statements and reports must also be published in Germany. One speaks here of the double publication obligation.
The golden days of Limited are over. It was only the introduction of the German UG and then Brexit that made this legal form less attractive.
Even if you can still set up a limited company today, we would not recommend this step. The constant change between British and German law, the dependence on an agency and the uncertain legal situation mean that this type of company is chosen by fewer and fewer founders.
Alternatively, we can recommend the establishment of a UG (limited liability).
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