In short: A limited company is a business that is legally separate from the people who own and run it. It is owned by shareholders and managed by directors, and shareholders' liability is generally limited to what they paid, or agreed to pay, for their shares. In return, it must file accounts and other information with Companies House and HMRC.
"Limited company" is one of the most common business structures in the UK. If you are thinking of starting a business, it helps to understand exactly what it means.
A separate legal person
A limited company is a legal entity in its own right. It can:
- Own property and assets.
- Sign contracts.
- Employ staff.
- Borrow money.
- Sue and be sued.
The company's money and debts belong to the company, not to the people behind it.
What "limited" means
The word "limited" refers to the shareholders' liability. If the company cannot pay its debts, shareholders usually lose only the money they put in for their shares, or any amount still unpaid on them. Their personal homes and savings are generally protected.
There are exceptions. Directors can become personally liable if they act wrongly, for example by trading while knowing the company cannot pay its debts, or if they sign a personal guarantee for a loan.
Who is involved
- Shareholders (members) own the company. They appoint directors and vote on major decisions.
- Directors run the company day to day. A private company needs at least one director, who must be a person aged 16 or over. Directors and shareholders can live anywhere in the world.
- People with significant control (PSCs) are those who, for example, own more than 25% of the shares or votes. Their details go on the public register.
- Company secretary is optional for a private company.
In a small company, one person can be the only director and shareholder.
Types of limited company
- Private company limited by shares - the most common type. Usually ends in "Ltd" or "Limited".
- Company limited by guarantee - no shareholders, members guarantee a small amount instead. Often used by charities, clubs and not-for-profits. See Ltd by Guarantee.
- Public limited company (PLC) - can offer shares to the public. Needs at least two directors, a qualified company secretary and £50,000 allotted share capital. See Public Limited Company.
A limited liability partnership (LLP) is a related structure for partnerships.
Advantages
- Limited liability for shareholders.
- Professional image. Some clients prefer to work with companies.
- Easier to bring in investors by issuing shares.
- Tax planning options. Profits are taxed through Corporation Tax, and owners can take a mix of salary and dividends. Whether this saves tax depends on your circumstances.
- Continuity. The company continues even if the owners change.
Responsibilities
A limited company has more admin than a sole trader. It must:
- File annual accounts with Companies House and HMRC.
- File a confirmation statement at least once every 12 months.
- Register for Corporation Tax within 3 months of starting to trade, and file a Company Tax Return.
- Keep statutory registers and records.
- Tell Companies House about changes, such as new directors or a new address.
- Have a registered office address and a registered email address.
Since 18 November 2025, directors and PSCs must also verify their identity with Companies House.
Public information
Company details are public. Anyone can see your company's name, registered office, directors' names and service addresses, PSCs and filed accounts. Directors' home addresses are kept private if they use a separate service address.
Is a limited company right for you?
It depends on your income, risk, plans and personal situation. A sole trader setup is simpler, but a company offers protection and flexibility. An accountant can compare the tax position for you.
How Form My Company can help
We form limited companies online, with the Companies House fee and VAT included in every package. As a Companies House ACSP, we verify your identity in-house, and most companies are registered within 24 hours. Start with our Digital Package at £290, or see all options on Compare Packages.
Frequently asked questions
Is a limited company the same as a sole trader?
No. A sole trader and their business are legally the same. A limited company is a separate legal entity.
Can one person run a limited company?
Yes. One person can be the sole director and shareholder.
Are directors personally liable for company debts?
Usually not, but they can be if they sign personal guarantees or break their legal duties, such as by wrongful trading.
What does a limited company have to file each year?
Annual accounts, a confirmation statement and a Company Tax Return, plus updates when details change.