What is a Limited Company?

/Published:12th December 2025/inBusiness, Limited Company, Running a business
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If you’re launching a business in the UK, one of the earliest decisions you’ll make is choosing the right legal structure. For many founders, contractors, and growing teams, that often points toward setting up a limited company – a structure designed to protect you, support growth, and provide a clear framework for how your business operates.

But what does “limited” actually mean in practice? How does running a limited company compare to being self-employed? And what’s the real difference between a private limited company (Ltd) and a public limited company (PLC)?

In this guide, we break down what a limited company is, how it works, and why thousands of UK entrepreneurs choose this structure every year. You’ll find practical explanations, legal essentials, and expert insights to help you make an informed choice – whether you’re forming your first company or reviewing your current setup.

Want to set up your company quickly and correctly? Take a look at our step-by-step incorporation support and ACSP-ready guidance through our sister company Formations Wise.

What is Meant by a Limited Company?

A limited company is a formal business structure where the business becomes its own legal entity – entirely separate from the individuals who own or manage it. This separation is one of the biggest advantages of incorporating in the UK and is a key reason many entrepreneurs move away from sole trader status as they grow.

The defining feature is limited liability, which means:

  • Shareholders are only financially responsible for the company’s debts up to the value of the shares they hold.
  • Directors run the company’s day-to-day operations but are not personally liable for company debts, unless they act negligently or trade while insolvent.

In practical terms, limited liability helps shield your personal assets – such as your home, car, or savings – if the company encounters financial problems. This built-in protection is one of the main reasons limited companies are seen as a more secure, scalable structure for UK businesses.

If you’re weighing up whether this is the right structure for you, our team at Formations Wise can guide you through the legal requirements, director duties, and Companies House registration process.

What Does Ltd Stand For?

When you see “Ltd” at the end of a business name, it refers to a Private Limited Company – the most widely used business structure in the UK. It signals to customers, suppliers, and lenders that the company is incorporated and operates as a separate legal entity.

  • “Limited” – shareholders’ financial responsibility is limited to the value of their shares, offering personal protection if the company struggles.
  • “Company” – the business exists independently from the people who own or manage it, with its own legal rights and obligations.

This structure is especially popular with freelancers, contractors, small businesses, and growing startups looking for credibility, tax efficiency, and reduced personal risk.

Types of Limited Companies

Private Limited Company (Ltd)

  • Owned by one or more shareholders and managed by directors (often the same people in small companies).
  • Shares cannot be offered to the general public.
  • Well-suited to small and medium-sized businesses that want protection, flexibility, and a professional structure.
  • A popular option for contractors, freelancers, consultants, and fast-growing startups due to tax efficiency and limited liability.

Public Limited Company (PLC)

  • Can list shares on a stock exchange and raise capital from the public.
  • Must have a minimum of £50,000 in share capital, with at least 25% paid up.
  • Subject to more detailed regulation, reporting, and governance rules set by the Companies Act and the Financial Conduct Authority.
  • Best suited to larger companies planning significant investment, expansion, or public fundraising.

What About “Pvt Ltd”?

Pvt Ltd is a term used in countries such as India and Singapore to describe a private limited company. In the UK, the equivalent is simply “Ltd”. Both structures share the same core idea: limited liability and separate legal identity.

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Limited Company vs Sole Trader

Choosing between operating as a sole trader or forming a limited company is one of the biggest early decisions for any UK business owner. Each structure has its own advantages, responsibilities, and tax implications. The table below highlights the key differences at a glance:

Sole TraderLimited Company
You and the business are legally the same – no separation.The company is a completely separate legal entity from its owners and directors.
Unlimited liability: your personal assets may be at risk if the business owes money.Limited liability: personal assets are protected (unless you act fraudulently or trade while insolvent).
Very simple to set up with minimal admin and accounting requirements.More admin and regulatory obligations (e.g., annual accounts, confirmation statements).
Profits are taxed via Self Assessment at income tax rates.The company pays Corporation Tax on profits; directors pay Income Tax and National Insurance on salaries and dividends.

While sole trader status is quick and easy for new or very small businesses, many entrepreneurs switch to a limited company as they scale, hire staff, or want more protection and credibility. If you’re unsure which route is right for you, our team at Formations Wise can help you weigh up the options based on your goals, tax position, and future plans.

Why Choose a Limited Company?

Forming a limited company is one of the most popular business structures in the UK and for good reason. It offers a blend of protection, credibility, and long-term flexibility that many sole traders eventually move toward as their business grows. Key advantages include:

  • Limited liability protection – Your personal assets are safeguarded if the company faces financial difficulties, giving you peace of mind as you grow.
  • Potential tax efficiencies – Depending on profits and how you pay yourself, operating through an Ltd can be more tax-efficient than working as a sole trader.
  • Greater credibility and trust – Many clients, suppliers, and lenders prefer dealing with incorporated businesses, especially for higher-value contracts.
  • Access to finance through share capital – Limited companies can issue shares, making it easier to bring in investment or new business partners.
  • Clear separation between you and the business – A distinct legal identity helps with financial control, long-term planning, and clearer record-keeping.

Responsibilities of a Limited Company

While a limited company offers strong legal and financial advantages, it also comes with important obligations. These ensure transparency, good governance, and compliance with both Companies House and HMRC. Key responsibilities include:

  • Registering with Companies House – Every limited company must be officially incorporated and maintain up-to-date statutory information on the public register.
  • Filing annual accounts – Directors must prepare and submit accurate financial statements each year, even if the company is dormant.
  • Submitting a confirmation statement – This yearly filing keeps Companies House informed of key details, such as shareholders, directors, and registered office addresses.
  • Completing a Corporation Tax return (CT600) – The company must report its profits to HMRC and pay any Corporation Tax due.
  • Maintaining accurate accounting records – Companies must keep detailed financial records, including invoices, receipts, bank statements, and supporting documents for tax and compliance.

Directors are legally responsible for ensuring these duties are met. If you need support managing compliance or keeping your accounts in order, the team at Accounting Wise can help keep your limited company accounts fully compliant year-round.

Conclusion

A limited company is a distinct legal entity that provides its owners with valuable limited liability protection. In the UK, most entrepreneurs choose a private limited company (Ltd), while larger organisations looking to raise public investment may form a public limited company (PLC).

This structure offers increased credibility, personal asset protection, and potential tax advantages – making it a popular choice for growing businesses. However, it also brings added responsibilities, including statutory filings, record-keeping, and ongoing compliance with Companies House and HMRC.

If you’re ready to take the next step and set up your limited company, our sister company Formations Wise offers fast, compliant company formation packages designed for UK entrepreneurs. From choosing the right structure to handling your Companies House registration and providing ongoing support, they make the process straightforward and stress-free.

Need help with your Limited Company Accounts? Contact Accounting Wise Today!

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What is a Limited Company FAQ

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The biggest advantage is limited liability, meaning your personal assets are protected if the business runs into financial difficulties.

No you can form a limited company as a single person, acting as both the sole director and sole shareholder.

Companies House charges a small incorporation fee, or you can use a formation agent like Formations Wise for a guided setup and additional supp

While not legally required, most directors use an accountant to handle annual accounts, Corporation Tax, payroll, and compliance.

The company pays Corporation Tax on its profits. Directors then pay Income Tax and National Insurance on their salaries, and shareholders may pay tax on dividends.

Yes – many businesses start as sole traders and incorporate once they grow, want more credibility, or need tax efficiency.

Companies House publishes certain details such as directors’ names, registered office address, accounts, and share structure.

Directors must ensure the company keeps accurate records, files accounts and confirmation statements, pays the correct tax, and follows company law.

It depends on your workflow. Manual timers give control and context, while automatic trackers like RescueTime or ManicTime run in the background and capture everything. Many freelancers use a mix.

A quick daily check keeps records accurate. A weekly review helps you refine estimates, track utilisation, and spot overruns. Monthly reviews let you analyse client profitability and adjust pricing.

Yes. Time logs create tidy audit trails, strengthen record-keeping, and link directly to invoices. They can also help justify expense allocations and support HMRC compliance, including Making Tax Digital.

Glossary of What is a Limited Company

Limited Liability – A legal protection that ensures shareholders are only responsible for company debts up to the value of their shares.

Separate Legal Entity – A limited company exists independently from its owners and directors, meaning it can own assets, enter contracts, and be held liable in its own name.

Share Capital – The total value of shares issued by the company. Even a basic Ltd can be formed with just £1 in share capital.

Director – The individual responsible for running the company and ensuring it meets its legal obligations, including filings with Companies House and HMRC.

Shareholder – A person or entity that owns shares in the company. They benefit from profits (dividends) and have voting rights depending on share structure.

Corporation Tax – The tax a limited company pays on its profits. Reported through the annual CT600 return.

Confirmation Statement – A yearly filing to Companies House confirming key details about the company, such as shareholders and registered office.

Annual Accounts – Financial statements that every limited company must file each year, even if the business is not trading.

Registered Office – The official address of the company where legal notices are sent. Must be a UK address.

PSC (Person with Significant Control) – Someone who owns or controls more than 25% of the company shares or voting rights.

Articles of Association – The rulebook that sets out how the company is governed, including director powers and shareholder rights.

Certificate of Incorporation – The official Companies House document confirming the company has been legally formed.

Dividends – Payments made to shareholders from company profits, often used alongside salary to achieve tax efficiency.

PLC (Public Limited Company) – A company that can sell shares to the public and must have at least £50,000 in share capital.

Ltd (Private Limited Company) – The most common UK company structure, where shares are privately owned and not traded publicly.

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