What is Limited Company?

A limited company is a type of business structure that creates a separate legal entity, distinct from its owners (shareholders) and managers (directors). The word 'limited' refers to limited liability -- the shareholders' financial liability is limited to the amount they invested in shares. If the company fails, creditors cannot pursue shareholders' personal assets (with some exceptions for fraud or wrongful trading).

There are two main types: a private limited company (Ltd) and a public limited company (PLC). The vast majority of UK businesses are private limited companies. A private company cannot offer shares to the general public and needs only one director (who can also be the sole shareholder). A PLC can sell shares on a stock exchange but must have at least two directors, a company secretary, and minimum share capital of £50,000.

Forming a limited company costs as little as £12 online through Companies House. You need to provide a company name, a registered office address, at least one director, at least one shareholder (who can be the same person as the director), details of shares (most start with 1 or 100 ordinary shares at £1 each), a memorandum of association, and articles of association (most use the model articles).

A limited company pays Corporation Tax on its profits at 19% (for profits under £50,000) or 25% (for profits over £250,000), with marginal relief between these thresholds. Directors typically extract money through a combination of salary and dividends, which is usually more tax-efficient than being a sole trader once profits exceed approximately £30,000-£35,000 per year. However, running a limited company comes with more administrative obligations, including filing annual accounts, a confirmation statement, and maintaining statutory registers.

Once incorporated, the company exists as a legal person. It enters into contracts, owns property, employs people, and pays taxes in its own name. The directors manage the company day-to-day and have legal duties under the Companies Act 2006, including duties to promote the success of the company, exercise reasonable care and skill, and avoid conflicts of interest.

The company must maintain a registered office where official correspondence is sent. It must file annual accounts with Companies House (within 9 months of the year end for private companies) and a confirmation statement (annually). It must keep statutory registers of members, directors, persons with significant control, and charges. Corporation Tax returns must be filed with HMRC within 12 months of the accounting period end, and tax paid within 9 months and 1 day.

Shareholders receive returns on their investment through dividends, which can only be paid from distributable profits (accumulated retained earnings). The company must hold a board meeting to declare dividends and prepare dividend vouchers. Shareholders vote on major decisions at general meetings, with voting power proportional to their shareholding.