A limited company is a business registered at Companies House that is a separate legal person from the people who own and run it. "Limited" means the owners' liability is limited. In a company limited by shares, a shareholder risks only the amount unpaid on their shares, not their personal assets. A private limited company needs at least one director and at least one shareholder, who can be the same person. It costs £100 to register online. Its profits are taxed through corporation tax at 19% to 25% in the financial year from 1 April 2026.
What "limited company" means
Section 3 of the Companies Act 2006 defines a limited company as one where "the liability of its members is limited by its constitution". There are two forms:
- Limited by shares. Members' liability is limited to the amount, if any, unpaid on their shares. This is the usual form for a trading business, and the company is owned by its shareholders;
- Limited by guarantee. Members promise to contribute a set amount if the company is wound up. This form is common for charities, clubs and not-for-profit bodies that have no shareholders to pay dividends to.
The Act also allows unlimited companies, where there is no limit on members' liability. They are rare and used for specific planning reasons. A public limited company (plc) is a different category again. It can offer shares to the public and must have at least two directors, where a private company needs only one.
Separate legal personality is what makes the structure work. The company owns its assets, signs its contracts, employs its staff and owes its own debts. If the business fails, its creditors generally have a claim against the company, not against the shareholders' homes and savings.
Where limited liability stops
Limited liability is real, but narrower than many owner-managers assume. Directors can become personally exposed through:
- Personal guarantees. Banks and landlords often ask for them on loans and leases, which puts the director back on the hook;
- Director's loan accounts. Money drawn from the company that is not salary or dividend is owed back to it, and a liquidator will collect it. An overdrawn loan can also trigger a separate tax charge on the company;
- Insolvency rules. Directors who carry on trading when they should have known insolvency was unavoidable can be made to contribute. This is known as wrongful trading;
- Their own conduct. Companies Act offences, such as failing to file or acting as a director without verifying identity, attach to the officers personally.
What you need to set one up
The gov.uk guide to setting up a private limited company lists the essentials:
- A name. It must follow Companies House's naming rules;
- A registered office address. This is where official post is sent;
- At least one director. Section 155 of the Act requires at least one director to be a natural person rather than a company;
- At least one shareholder. This can be the director;
- People with significant control. Anyone holding more than 25% of the shares or voting rights must be identified, along with anyone who meets the other control conditions;
- A SIC code. This describes what the company does;
- Memorandum and articles of association. The articles are the company's rulebook;
- A statement of capital. This sets out the shares issued. Companies limited by guarantee file a statement of guarantee instead.
Since 18 November 2025, new directors must verify their identity with Companies House before the company can be incorporated. The online incorporation fee rose from £50 to £100 on 1 February 2026, and the paper fee is £124.
Running a limited company: the annual obligations
A company's affairs are public in a way that a sole trader's are not, and the filing calendar is fixed by law:
| Obligation | Deadline |
|---|---|
| First accounts to Companies House | 21 months after incorporation where they cover more than 12 months (or 3 months after the accounting reference date, if later) |
| Annual accounts to Companies House | 9 months after the financial year end |
| Corporation tax payment | 9 months and 1 day after the end of the accounting period |
| Company Tax Return (CT600) | 12 months after the end of the accounting period |
| Confirmation statement (£50 online) | At least every 12 months, within 14 days of the review period end |
Changes to directors, shareholders, PSCs and the registered office must be filed as they happen. Our guide to filing a confirmation statement covers the annual check.
How a limited company is taxed
The company pays corporation tax on its profits. For the financial year beginning 1 April 2026, the rates are unchanged from 2025:
- Small profits rate. 19% where profits are £50,000 or less;
- Main rate. 25% where profits exceed £250,000;
- Marginal relief. Between the two limits, marginal relief (standard fraction 3/200) produces an effective rate that rises from 19% to 25%.
Owners then pay personal tax on what they take out. Salary goes through PAYE. Dividends are paid from post-tax profits and taxed on the shareholder in 2026/27 at 10.75%, 35.75% and 39.35% for basic, higher and additional rate taxpayers, after a £500 dividend allowance. The basic and higher dividend rates each rose by two percentage points from April 2026 (from 8.75% and 33.75%), while the additional rate stayed at 39.35%.
Limited company or sole trader?
A sole trader has no separate legal identity, so the business's debts are the owner's debts, and all profits are taxed as the owner's income whether drawn or not. A company offers limited liability, the ability to retain profits at corporation tax rates, and a structure that can take on investors or be sold. In return it brings more administration and public filing. Our guide to what a sole trader is sets out the other side of the comparison.
If you are deciding whether to incorporate or need the company set up properly from day one, our company formation service handles registration and identity verification, and our accountants for limited companies look after the accounts, tax returns and filing calendar.