Limited company

A limited company is a separate legal entity and is registered with Companies House. They are usually limited by shares. As the name suggests, a limited company gives limited liability to the shareholders (owners) of the business. The accounts need to be submitted to Companies House and are on public record. 

Any money in a limited company is owned by it, unless it has been lent to the company by the directors and/or shareholders, and there are strict rules as to how the company can pay this to the directors and shareholders. 

There are shareholders and directors of the company, which in small family companies are usually the same people: 

• The directors run the company and can be paid wages for the work they undertake
• The shareholders receive dividends from the profits made, and the level of these is agreed by the directors  

Other types of company – such as company limited by guarantee, or a company interest company – can be used to provide not-for-profit structures or serve community purposes.

• A company can be a distinct farming business which need not (but could) own or rent the land it farms
• Its ownership structure with shares gives a flexible way to involve family members or others without them needing to have a management role  
• The transfer of shares can transfer ownership or control of the company without changing the identity of the company
• Its management structure can involve some or all shareholders as directors, and equally have non-shareholders as directors with management or other skills. Shareholders need to understand that a company is a separate legal entity with its own accounts and decision processes; its money and resources are not theirs to use readily at will but have tax and other consequences
• There are responsibilities in being a director 
• Separate accounts, records and Companies House public information must be kept up to date

• A company is taxed under Corporation Tax
• The return to individual shareholders (dividends) and directors (salaries) follow their tax status
• Directors will be taxed on benefits in kind (especially any housing) they have from their company
• Where a company sells an asset to return funds to a shareholder, there will be Corporation Tax on any gain and then the shareholder will be taxed on the receipt 
• Where a company owns housing it can be liable to the Annual Tax on Enveloped Dwellings, but many farming situations are eligible for tax relief

For the operator: 

• To have a means to farm that is ring-fenced from other businesses (and if just for farming operations can be independent of the land)
• It can provide a means for businesses to work together in a joint venture
• Share ownership can give risk and reward to those running the business 
• Limited liability can matter where there is particular exposure to risk (but lenders and others can still ask for personal guarantees)
• Where the business is likely to have continuing value independent of a key participant
• Share ownership is not limited to those involved in the business, so can be open to other family members or investors

 For the landowner: 

• A company can ensure continuity in the business farming the land, a phased approach to succession or introducing new skills or finance. Where wanted, it allows direct business management to be separated from land or business ownership

Step-by-step guide to setting up a limited company Set up a limited company: step by step – GOV.UK 

Further help on choosing the right business structure for you Get help and support for your business – GOV.UK