A limited company is one of the most popular business types in the UK, giving owners legal separation and personal protection from the liabilities of the company. Below we explain how a limited company works, the types available, what running one involves day-to-day, and how it compares with being a sole trader.
- Shareholders are only liable for the amount they invest, meaning personal assets like your home remain protected even if the company faces debt or litigation.
- Directors can draw a modest salary and top up income with dividends, which can result in a lower overall tax liability compared to sole traders.
- Every director must now verify their identity with Companies House before a company can be registered, and each person with significant control must do so within 14 days of being added to the register.
- A limited company offers perpetual succession, meaning it continues to exist even if the original owners or directors leave or pass away.
What Is a UK Limited Company?
A limited company is a legal business structure that separates the business from its owners and directors while giving them the benefit of personal limited liability. Limited liability means that any financial risk to shareholders is restricted to the amount they invest in the company. Personal assets such as your home or car are protected if the company gets into debt or litigation, provided there is no wrongdoing by the directors involved.
As a separate legal person, a limited company can:
- Own assets (e.g. property and machinery)
- Enter into contracts with customers and suppliers
- Employ staff
- Pay taxes in its own right
To see what this means in practice, take a company with two shareholders, each holding 50 ordinary £1 shares. If the business fails owing £80,000, all each shareholder can lose is the £50 they paid – or agreed to pay – for their shares. Their homes, savings and other personal assets are beyond the reach of the company’s creditors, unless they have signed personal guarantees, which lenders and landlords sometimes require.
What Are the Types of Limited Company in the UK?
There are several types of limited company in the UK, including private company limited by shares, limited by guarantee and public limited company. They differ in who can own the shares and what each structure is designed for:
| Type of UK limited company | Description |
|---|---|
|
Private company limited by shares |
Its shares are held privately and cannot be offered to the public. |
|
Limited by guarantee |
A company limited by guarantee is typically used by charities or non-profit organisations. With this type of business, there is no share capital because members act as guarantors. |
|
Public limited company (PLC) |
PLCs can offer their shares to the public and may be listed on a stock exchange. Requires a minimum allotted share capital of £50,000, at least a quarter of which must be paid up. |
Private limited companies (LTDs) are not just for large businesses such as national or multinational corporations; they can also be used by one-person businesses and SMEs. According to our company formations review, private companies limited by shares make up over 92% of all UK corporate bodies, while companies limited by guarantee represent only a small fraction of the register.
Public limited companies also carry obligations that private companies avoid: a company secretary is compulsory, and annual accounts must be filed within six months rather than nine.
How Does a Limited Company Work?
To form a limited company in the UK, you first need to register your new business with Companies House, a process also referred to as “incorporation”. Once your limited company has been successfully registered with Companies House, your company is assigned a unique company number and becomes a legal entity in its own right.
Limited companies have shareholders and directors.
- A shareholder is someone who owns a share in a limited company.
- Directors are people responsible for running the company; they ensure legal compliance with the Companies Act 2006 and the rules set by Companies House and HMRC.
Any profit that remains after corporation tax has been paid can either be distributed to shareholders or reinvested into the business (e.g. to buy new equipment).
What Are the Advantages of a UK Limited Company?
Forming a limited company in the UK offers several distinct advantages:
- Limited liability – the company’s debts are its own.
- Tax efficiency – limited companies can benefit from more tax-efficient arrangements compared to sole traders, particularly as profits grow. Company directors also have the option to draw a modest salary and add to their income with dividends, which can result in a lower overall tax liability, although the size of any saving depends on the tax rates in force at the time.
- A more professional image – simply having the letters “LTD” after your business name can build trust with your customers, suppliers and investors.
- Easier to raise funds – a limited company can issue shares and may attract external investors.
- Perpetual succession – a limited company continues to exist even if the original owners or directors leave or pass away. Shares pass to the buyer or to the estate, while the company itself keeps its name, contracts, bank account and staff – nothing needs to be re-signed.
What Are the Disadvantages of a UK Limited Company?
There are some disadvantages of limited companies to weigh against those advantages:
- More administration – to comply with the law, you will have to file annual accounts and confirmation statements, keep a register of members and report changes to Companies House – the deadlines are set out further down this page.
- Public disclosure – company information, including directors’ names and financial accounts, is available to the public via Companies House.
- More costs – there are setup and ongoing costs, including filing fees and accountant fees.
- Greater overall complexity – as a company director, you need to comply with the Companies Act 2006 and HMRC requirements, which can be time-consuming and increase the risk of non-compliance if you lack experience.
What Are the Main Differences Between a Limited Company and a Sole Trader?
The main differences between the two most popular business types are as follows:
| Feature | Limited company | Sole trader |
|---|---|---|
|
Legal status |
Separate legal entity |
Not separate from the owner |
|
Liability |
Limited to the value of investment |
Unlimited personal liability |
|
Taxation |
Corporation tax and dividends |
Income tax is payable on all profits |
|
Personal privacy |
Public disclosure is required |
No public disclosure required |
|
Ongoing costs |
Higher |
Lower |
While a sole trader setup is simpler and cheaper to run, it offers no personal liability protection for the owner. Limited companies, on the other hand, are more complex but offer greater protection and continuity.
How Can I Set Up a Limited Company?
There are two main methods of setting up a limited company: “Do it yourself” (DIY) or through a formation agent such as Uniwide Formations. Whichever you choose, the general process of incorporating a company stays the same; you will need to:
- Choose your company name – it must not be too similar or the same as another registered company. To make this process easier, we offer a company name check service on our website.
- Appoint at least one director.
- Decide on your company shareholders – you must have at least one shareholder who can be the same person as the director.
- Allocate shares – decide how many shares to issue to shareholders and their value.
- Prepare your Memorandum of Association and Articles of Association – these constitutional documents define how your company will be run. We can draft these for you based on your needs.
- Provide a registered office address and a registered email address – the office address appears on the public register and must be a physical address in the UK; the email address is used by Companies House for official communications and is not published.
- File your company registration application online or through a company formation agent. The application must include at least one SIC code – a standard code that tells Companies House what your company does.
- Pay the application fee – currently £100 if you file online
- Register for Corporation Tax with HMRC – this must be done within three months of starting to do business.
Every director must now verify their identity with Companies House before a company can be registered, and so must each person with significant control (PSC) – broadly, anyone who holds more than 25% of the shares or voting rights, or who otherwise controls the company – either when they are added to the register or within 14 days of being added. This requirement was introduced under the Economic Crime and Corporate Transparency Act. Most companies can be formed within 24 hours when registered online; however, we provide a same-day service if your application is placed by 1.30 pm Monday to Friday and you have passed our identity verification checks.
Directors must:
- Act in the company’s best interests at all times
- Keep proper financial records
- File annual accounts and confirmation statements
- Ensure the company pays taxes on time
- Report changes in company share structure, directors (officers) and registered address
Shareholders:
- Own part of the company
- Vote on important company decisions
- Can appoint and remove directors
- Receive dividends
Ongoing Compliance and Reporting
Once your company is formed, you must meet ongoing reporting and compliance duties:
- Annual accounts – your limited company’s annual accounts must be filed with Companies House within nine months of the end of your financial year, or six months for a public company. A company’s first accounts after incorporation are allowed 21 months from the date of registration.
- Confirmation statement – this document confirms key company details held by Companies House and must be submitted at least once every 12 months (you have 14 days after the end of each review period to file). The fee is currently £50 if you file online.
- Corporation Tax return – must be filed with HMRC, along with full company accounts, within 12 months of the end of the accounting period it covers. Note that any Corporation Tax due is payable earlier – nine months and one day after the end of that period.
- VAT returns – a company registered for VAT must file a return with HMRC, usually every three months, within one calendar month and seven days of the end of the accounting period it covers; any VAT due must reach HMRC by the same deadline. Registration becomes compulsory once VAT-taxable turnover passes the threshold, currently £90,000 in any rolling 12-month period.
- Maintain a register of members (shareholders) – this must be kept at the company’s registered office or a single alternative inspection location (SAIL). Companies no longer need to keep their own registers of directors or people with significant control (PSCs), as this information is now held and kept up to date at Companies House.
UK Limited Companies: Frequently Asked Questions
Is a limited company the same as a limited liability partnership (LLP)?
No. An LLP combines limited liability with the flexibility of a partnership: its owners are members rather than shareholders, it has no share capital, and it is transparent for tax, so members pay tax on their share of the profits rather than the business paying corporation tax in its own name.
How much corporation tax does a limited company pay?
A limited company currently pays corporation tax at 19% on taxable profits up to £50,000 and 25% on profits above £250,000. Profits between these figures are taxed at an effective rate in between, through marginal relief. Corporation tax is charged on the company’s profit, not on money the owners take out, and it is separate from the personal tax shareholders pay on dividends.
Can a non-UK resident set up a UK limited company?
Yes. Directors and shareholders do not need to live in the UK or be British. The company does need a UK registered office address. Every director and person with significant control must also complete Companies House identity verification, which people based overseas can do with a biometric passport through GOV.UK One Login, or through an authorised UK agent.
Do I need an accountant to run a limited company?
There is no legal requirement to use an accountant, and directors are allowed to prepare and file the company’s accounts themselves. In practice, most companies use one. Statutory accounts must follow set accounting standards, and corporation tax calculations can be complex, so mistakes can lead to penalties or rejected filings.
What is a limited company’s registered office address?
It is the company’s official address on the public register, where Companies House and HMRC send statutory mail. It must be a real address in the part of the UK where the company is registered. Since recent reforms, it must also be an appropriate address where post reaches someone acting for the company, so a PO box on its own is no longer acceptable.
Does a limited company have to register for VAT?
Not automatically. A company must register for VAT once its VAT-taxable turnover passes the registration threshold (currently £90,000 in any rolling 12-month period) or when it expects to pass it within the next 30 days. Below that level, registration is optional. VAT is separate from corporation tax and applies to turnover, regardless of whether the company makes a profit.
Can I use my home address for a limited company?
Yes, but it is worth knowing which of your addresses become public. The registered office and any director’s or PSC’s service address appear on the public register, so a home address used for either can be searched by anyone. Your usual residential address is treated differently: Companies House holds it on a private register and does not publish it, although it is shared with credit reference agencies and specified public authorities such as the police. Every director has to supply one, so the real choice is not whether to give Companies House your home address but whether to publish it. If your home is already showing as a registered office or service address, you can apply on form SR01 to remove it from each document it appears on, paying a fee for each one, and, if you still hold the appointment, give a replacement address at the same time – usually more trouble than setting up a separate service address at the start.
Can I switch from being a sole trader to a limited company?
You can; however, you cannot convert the sole trader itself – you must incorporate a company and move the business into it, then decide whether to keep the sole trader running or close it. Many people start as a sole trader and form a limited company later as the business grows. Most of the work is in the handover: contracts and leases must be reassigned to the company, it needs its own bank account, and a VAT number carries over only if you ask for it on form VAT68.
Can I set up a limited company on my own?
Yes – one person can be the sole director and sole shareholder of a private company limited by shares, and if you own it outright you will also be its person with significant control. Many of our clients start this way and bring in further shareholders or directors as the business grows.
Is a Limited Company the Right Choice for My New Business?
Incorporating as a limited company may be the right choice for you if you want to protect your personal assets from business risks and keep a clear separation between personal and business finances. The same is true if you want a professional business image for your customers, suppliers and investors.
The case is even stronger if you may need to raise investment or attract partners, or if you expect your profits to reach a point where operating through a company becomes more tax-efficient than operating as a sole trader.
All of this flows from one legal fact: the company is a person in its own right, so its debts and obligations are its own, not yours. Bear in mind that the separation cuts both ways: the company’s money is not your money, and taking it out – as salary, dividends or anything else – has tax consequences of its own. If that protection and structure are what your business needs, most owners accept the extra administration without much hesitation.
