Do I Need an Accountant for a Limited Company?

do I need an accountant for a limited company

In the world of corporate law, a limited company is a corporate entity that works to protect its investors or constituent members by only providing a limited level of liability according to the particular value of said investor’s contributions.

Limited companies, much like other forms of corporate entities, may be controlled by dividing their relative value into that of corporate share percentages or guarantees. And, just as much like other corporate entities, limited companies may also be publicly traded if not otherwise legally recognized as a private limited company.

While limited companies are in no way obligated by law to retain an accountant either as an individual contractor or as a salaried employee, it is entirely an advisable decision to make owing to the particular expertise of most certified accountants, potentially saving the limited company large amounts of money in certain situations. 

What is an Accountant?

An accountant is an individual acting under the financial sector as either a freelance professional or one working beneath an entity. 

Oftentimes certified in such a way that they are allowed to take on the title of CPA, chartered accountant or many other prestigious accountancy related titles, accountants are known as one of the main cornerstones of financial management and analysis.

In relation to a limited company and its subsequent operations, an accountant acts in an assistive and facilitatory capacity so as to aid the continued function and preservation of the limited company, usually performing tasks that other finance professionals or members of the company are otherwise not qualified or knowledgeable enough to do.

Even in the event of being delegated to relatively simple or small tasks pertaining to financial matters, an accountant can act as both a stop gap for errors as well as a valuable time saver for executives or employees of the limited company by filling a role that would otherwise be picked up by individuals who do not specialize in accountancy.

What is a Limited Company?

llc meaning

Limited companies, either shortened to Ltd. in areas outside of the United States and otherwise referred to by a variety of names such as LLC within the United States, are a form of corporate entity wherein the individual company’s shareholders or shared owners only represent a limited percentage of the company, with all the drawbacks and benefits that come with such an arrangement.

Limited companies are separated from other companies by nature of their internal legal structure, ensuring that the liability or responsibility to the actions and services of the limited company are entirely dependent on the level of investment or stake an individual possesses within the limited company organization.

From a financial standpoint, limited companies function by separating each shareholder or partial owner’s assets and cash flow from that of the limited company itself, essentially creating a legal barrier between the finances of the company and each of its constituent executive members.

This can be beneficial to the owners and the company in many ways, such as allowing federal financial audits to be legally unable to probe the personal finances of the individual shareholders without probable cause.

A limited company may also file bankruptcy according to their own operating costs without the assets and finances of the shareholders or shared owners being affected by said bankruptcy, not only protecting these individuals from the financial liability of the company’s debt but also from being legally seized by external entities such as creditors or the federal government itself.

How Does an Accountant Work Under a Limited Company?

Even before the inception of a limited company, hiring a certified accountant will save the corporation both time and energy by utilizing their experience and education to register the limited company amongst the various governmental agencies that require it.

Apart from being able to leverage their skills to arrange the proper documents in the correct window of time, accountants may also aid in the early stages of starting up a limited company by streamlining the process and acting as a catch-all for certain financial duties such as tax calculations, tax filing, payroll matters and even bookkeeping in certain cases.

Even working on a case commission basis or otherwise as an external contractor unrelated to the limited company itself, accountants with the proper certifications are capable of further protecting the shareholders of said limited company by certifying the financial statements released therein, placing their own professional reputation and name on these disclosures.

Why Do Limited Companies Exist?

Limited companies are primarily created within legal purview in order to legally separate the individual owners and shareholders from the corporate entity itself, of which has many benefits and occasionally acts as a financial insurance in the case that something goes wrong involving the limited company.

Apart from this, unlike certain other types of corporate entities, limited companies are sometimes considered individuals within the eyes of financial law, and as such are legally allowed to retain profits made through services and sales, though this does not exempt limited companies from taxes in most situations.

Limited companies, being legally distinct from its constituent members and executives, also provide a stopgap both legally and financially between each separate entity, oftentimes removing the necessity of asset disclosure between shareholders of this company as well as preventing said assets from being seized by creditors or the federal government in the event something disastrous may occur.

And finally, limited companies may legally act as an individual in most forms of contract law, though this is highly dependent on the location wherein the contract has been produced and the nature of said contract. 

What are the Types of Limited Companies?

Limited companies come in a variety of different forms, depending both on the desired outcome by its founding members as well as the local laws in place wherever the limited company is based in.

In the case of private limited companies, the public are not given access to shares of company stock, thereby keeping the ownership of the limited company entirely within its circle of founders or even its lone owner. Oftentimes these limited companies are corporate off-shoots created by larger companies for legal purposes, or otherwise highly specific corporations created by wealthy individuals for a certain goal. 

Private limited companies are often internally funded and as such have no need to turn to public investors for the purpose of raising capital, most likely generating funds either through the founder’s own personal assets or through private investors.

Public limited companies, on the other hand, do accrue their starting capital through the offering of stock shares on public market listings and stock broker agencies. This method, apart from requiring very little capital from the founding members, is also extremely common owing to the ease of financial planning that it involves.

Can Limited Companies Benefit from Other Kinds of Finance Professionals?

Much like other corporate entities offering services and products to the public or to prospective clients, some level of cash flow and financial transactions will occur, oftentimes requiring documentation and review, both for prosperity and for the purposes of disclosure to the federal government and shareholders.

As such, limited companies may find themselves in the need of services often performed by other types of finance professionals separate from those of a certified accountant. While accountants are likely educated and trained enough to perform these duties, they are best used in cases that require in-depth expertise and analysis that other finance professionals do not specialize in.

Individuals such as bookkeepers, financial advisors and even external contractors related to the finance industry may all be beneficial in the course of running a limited company, regardless of its size, value, or whether it is publicly or privately traded.

Are Limited Companies Legally Obligated to Hire an Accountant?

As previously mentioned earlier in this article, limited companies are not legally required to hire an accountant or to otherwise keep a member of the accountancy profession on retainer. 

The exact reasoning behind this legal decision is unclear, but appears to be nearly unanimous between most national legal jurisdictions, and as such is almost universal regardless of where the limited company is based.

This, of course, has several caveats that must be adhered to in the event that the limited company’s executives do not desire to employ a certified accountant. Among these requirements is that the limited company must have a total asset value of below a certain amount, as well as must not contain more than fifty or so employees on average within a certain period of time.

However, if any major shareholder within the limited company requests an internal audit or if an external audit is being performed by the federal government, an appropriately certified accountant must be appointed to a suitable position within the company so as to facilitate and work with the audit.

This is because only certified accountants are legally allowed to act in an advisory and faciliatory capacity in concerns related to financial audits. While this legal specificity is not universal between law jurisdictions or countries, it is still the majority in most western countries.

Should You Hire an Accountant for a Limited Company?

While it is true that the majority of limited companies are not required to appoint an accountant, there are many benefits to doing so, and may even save the limited company a great deal of money in the long term.

Among the duties performed by the certified accountant beneath the limited company’s purview is that of registering the company with the relevant federal tax bodies, and, by extension, compiling the required tax filings so as to appease the taxation laws of the state or country therein.

Even in a non-tax based capacity, certified accountants can act in a variety of capacities that aid the function of the limited company such as acting in the name of a company’s financial communication, releasing pay stubs and invoices as needed.

Apart from these two duties, accountants will shine best in an advisory capacity related to the managing of the limited company’s finances, as accountants are both qualified and certified for advising on subjects like taxes, financial future planning, shares management and even references to other professionals of the finance sector.

Can You or a Non-Accountant Individual Perform Accountancy Related Duties in a Limited Company?

Considering the fact that, in most cases, limited companies do not require any sort of professional financial management for the most part, it is entirely possible for the company owner or a similarly designated individual who does not possess any formal financial training to perform certain accountancy duties.

Of course, these duties must be performed in accordance with the standards and bylaws of the area in which the company is based, and as such untrained and uncertified individuals may be prone to making costly mistakes in regards to these financial matters, especially those of taxation and asset management.

This individual must ensure that all relevant disclosures and information is submitted to the correct regulatory bodies and external entities so as to prevent costly misunderstandings from occurring.

It is our advice, however, that the limited company instead appoint a veritably certified financial professional to perform these duties, as even if the company owner or non-accountant individual makes no mistakes, it is likely that they will be less efficient than a formally educated and trained accountant, wasting much of their valuable time.

Works Cited

1. Unknown Author. (N.D.) Thomson Reuters Practical Law. “Glossary: Public limited company (PLC)

2. Gordon H. Brough. (2005) “Private Limited Companies: Formation and Management” Sweet & Maxwell

3. Jeri Williams. (April 2021) “Do you need an accountant for a limited company?” Smooth. Accounting smoothaccounting.co.uk