A limited company is a separate legal entity from its owners. This means the company can own property, enter contracts, and incur debts in its own name — and, crucially, shareholders are generally only liable for the amount they have invested.
Types of Limited Company
- Private limited company (Ltd) — the most common structure for small and medium businesses; shares are not publicly traded
- Public limited company (PLC) — can offer shares to the public; subject to more stringent regulatory requirements
- Limited liability partnership (LLP) — combines partnership flexibility with limited liability; popular among professional firms
Incorporation Requirements
To incorporate a private limited company in England and Wales, for example, you must:
- Choose a unique company name (check availability at Companies House)
- Have at least one director (who must be a natural person aged 16 or over)
- Have a registered office address in the UK
- File a Memorandum and Articles of Association
- Pay the registration fee (currently £50 online)
Directors' Duties
Directors are not simply managers — they have statutory duties under the Companies Act 2006, including:
- Acting within their powers
- Promoting the success of the company for the benefit of its members
- Exercising independent judgment
- Avoiding conflicts of interest
- Not accepting benefits from third parties
Breach of these duties can result in personal liability and disqualification.
Ongoing Compliance
Once incorporated, a company must file annual accounts and a confirmation statement with Companies House, pay corporation tax, register for VAT if turnover exceeds the threshold, and maintain statutory registers.
Is a Limited Company Always the Right Choice?
Sole trader structures are simpler and cheaper to run. A limited company makes more sense when the business carries significant risk, when you need to raise investment, or when the tax efficiency of taking salary plus dividends outweighs the administrative burden.
This guide is general information, not legal advice. Consult a solicitor or accountant before making structural decisions for your business.
