What is a Limited Company

A limited company is one of the most popular business structures in the UK. It is a type of legal entity that is separate from the individuals who own or manage it. This separation provides a number of advantages, especially when it comes to liability, tax planning and business credibility.

Whether you are starting a new business or thinking about changing your existing setup, understanding what a limited company is and how it works is an important first step.

How does a limited company work?

A limited company exists in its own right. This means it can enter contracts, own assets, borrow money, pay tax and be held legally responsible for its actions, just like an individual. The key feature is that the company’s finances are separate from the personal finances of its directors and shareholders.

In simple terms, if the company owes money or is taken to court, it is the company itself that is responsible, not the people who run it. This protection is known as limited liability.

There are two main types of limited companies in the UK:

• Private limited company (Ltd): This is the most common structure, typically used by small and medium-sized businesses. Shares are held privately and cannot be traded on the stock exchange.

• Public limited company (PLC): This structure is used by larger companies whose shares are traded publicly. It has stricter legal requirements and must have at least £50,000 in share capital.

Most new businesses in the UK that choose a limited structure set up as a private limited company.

Who owns and runs a limited company?

A limited company is owned by its shareholders and run by its directors. In many small businesses, the same person is both the sole shareholder and the sole director. However, larger companies often have several shareholders and a separate board of directors.

Shareholders invest in the company by buying shares, while directors are legally responsible for managing the company and making decisions in its best interests.

The company’s activities are guided by its articles of association, which is a legal document outlining the rules for running the business. Every company must also submit a memorandum of association when it is first registered.

What are the benefits of a limited company?

There are several reasons why individuals and partnerships decide to incorporate as a limited company.

First, limited liability provides protection against personal financial loss if the business faces difficulties. Second, a limited company can be more tax efficient, as profits are subject to Corporation Tax, and directors can take income in a mix of salary and dividends. Third, limited companies tend to appear more credible and professional to clients, suppliers and lenders.

In addition, the company name is legally protected and cannot be used by another business once it is registered.

What responsibilities come with it?

Running a limited company also brings legal and administrative responsibilities. These include:

• Filing annual accounts with Companies House

• Submitting a confirmation statement each year

• Keeping company records up to date

• Registering for and paying Corporation Tax

• Maintaining accurate financial records and paying any relevant VAT or PAYE liabilities

Directors must act in accordance with the Companies Act 2006, which includes duties such as promoting the success of the company and avoiding conflicts of interest.

How to set one up

To set up a limited company in the UK, you must register it with Companies House. This process includes choosing a company name, appointing directors, deciding on shareholders and issuing shares. You must also provide a registered office address and prepare key legal documents.

The registration can be completed online and, as of 2025, the standard application fee is £50. Once registered, you will receive a certificate of incorporation confirming your company is legally formed.

Final thoughts

A limited company is a flexible and protective business structure that suits many entrepreneurs and growing businesses. It separates your personal finances from those of the business, offers tax planning opportunities and adds a layer of professionalism to your brand.

That said, it comes with additional responsibilities and filing obligations. If you are unsure whether a limited company is right for your situation, it is a good idea to speak to an accountant or business adviser who can guide you through the options.