A limited company is a business that is its own separate legal person, created by registering it at Companies House. It is not you. It owns its own money, signs its own contracts and carries its own debts, and you own it by holding shares in it. Everything else people tell you about limited companies comes out of that one fact: the protection for your personal savings, the extra paperwork, the public record, and the fact that you have to pay yourself on purpose rather than just taking the money.
"Company" makes it sound like an office with staff in it. Most UK limited companies are one person at a kitchen table who set it up, runs it, owns all of it and is its only employee. A limited company — "ltd company" is the same thing, after the Ltd on the end of the name — is a legal shape, not a size.
At a glance
| Feature | Detail |
|---|---|
| What it is | A separate legal person from you, created by registering at Companies House |
| Who owns it, who runs it | Shareholders own it, directors run it — in most small companies that is the same one person |
| Your liability | Normally limited to what you put in, unless you have signed a personal guarantee |
| Setting it up | A small filing fee at Companies House, usually approved in a day or two |
| Every year | A confirmation statement and annual accounts at Companies House (accounts due nine months after year end), and a Corporation Tax return to HMRC |
| How you get paid | Salary, dividends, or a mix — decided deliberately, through the books |
| What is public | The company, its directors, its owners and its accounts are on a free public register |
A limited company is one of five structures a UK business can take, and for most first-time founders the real choice is between this and being a sole trader. Our business structures guide compares them side by side. This page goes deep on the company.
The one thing that explains everything else
Setting up a limited company creates a second person on paper. It has a name, a birthday — the date it was incorporated — an address, a number and its own bank account. Four things follow, and they are what surprises new company owners most.
The company's money is not your money. Sales are paid into the company's account and belong to the company until it pays you properly. This is why a separate business bank account stops being optional.
The contracts are the company's contracts. Your customer's agreement is with the company, not with you personally. So are the supplier accounts, the van lease and the phone contract, if you set them up that way.
The debts are the company's debts. That is the protection everyone comes for, and the next section is about where it stops.
Being a director is a legal job. Running the company makes you a director, and that comes with duties: filing on time, keeping proper records, and acting in the company's interests. GOV.UK's guidance on being a company director sets them out plainly, and it is ten honest minutes before you file anything.
Limited liability, and what it does not cover
Limited liability means that if the company runs out of money, the people it owes can normally only take what the company has. Your savings, your car and your home sit outside it, and what you stand to lose is what you put in.
For a business that carries real risk, that is worth a lot. It is also the most misunderstood thing about running a company, because there are three common situations where the protection is not there.
Personal guarantees. This is the big one. A bank lending to a new company, a landlord letting a unit, a leasing company financing a van, and plenty of ordinary trade suppliers will ask a director to sign a personal guarantee — a promise that if the company does not pay, you will, out of your own pocket. Sign one and, for that debt, you have handed the protection straight back. It is not a sign that anyone distrusts you; a company formed last month has no track record, so lenders ask as a matter of course. What matters is knowing you have signed one. Read it, ask whether it can be capped or time-limited, and keep a list of every guarantee you have given and to whom.
Carrying on when you know the company cannot pay. If a company is going under and the directors keep running up debts anyway, a court can make those directors personally liable for the extra damage. In practice: if the company is in trouble, take advice early rather than trading through it and hoping.
Your own actions. Limited liability does not cover fraud, and it does not protect you from your own negligence in the way people imagine. If your work injures someone or damages their property, insurance protects you, not the company structure — our business insurance guide covers which cover matches which trade.
One more thing worth being straight about: limited liability caps your loss rather than preventing one. If the company fails, the cash you paid in and the profit you left in it go with it.
Director, shareholder, employee: three hats, often one person
This is where most people get tangled. A company has three separate roles, and in a one-person company the same person fills all three.
Shareholders own the company. They hold the shares, vote on the big decisions, and receive dividends when there is profit to pay them from. Owning shares does not mean you work there.
Directors run the company. They make the day-to-day decisions, sign the accounts, and are legally responsible for the filings going in on time. You can hand the work of filing to an accountant; you cannot hand over the responsibility. Being a director does not mean you own anything.
Employees work for the company and are paid a wage through payroll, with tax and National Insurance taken off before it reaches them. Pay yourself a salary and you are the company's employee for that purpose.
So on a normal Tuesday you might wear all three hats: fit a boiler as the employee, approve the new van as the director, take a dividend as the shareholder. Knowing the roles are separate is also what lets a company grow, because you can bring in someone who owns a slice and never works there, or a director who runs things and owns nothing.
Shares, and why you should issue 100 of them
Shares are the slices the ownership is cut into, and when you form a company you decide how many there are and who holds them. A one-person company could issue a single share worth £1, and plenty do, because the form does not stop you.
Issue 100 instead. It costs nothing extra, takes the same ten seconds on the same form, and makes life far easier the first time ownership changes. To give someone 10% you hand over 10 shares. With a single share you are splitting one share into fractions or issuing new ones, which means paperwork and probably a fee to get it right. Nothing else changes: 100 shares at £1 each is £100 of share capital, and you still own the whole thing.
What matters more than the number is the split when there is more than one of you. That split is the ownership of the business — who gets what if it is ever sold, and whose vote carries. Changing it later is harder than agreeing it now, so have the awkward conversation before you file.
How you get paid
You cannot take money out of a limited company the way a sole trader takes money from their own till, because it is not yours yet. There are three legitimate routes, and most small company owners use a mix of the first two.
A salary. The company employs you and pays you through payroll, with tax and National Insurance handled as for any employee. It has to be registered as an employer first, before the first payday. Salary is a cost of the company, so it reduces the profit Corporation Tax is charged on.
Dividends. A share of the profit, paid to shareholders after the company has paid its Corporation Tax. Two rules matter: you can only pay a dividend if there is profit available to pay it from — not just money in the account, which might be next quarter's VAT — and it has to be recorded, with a dividend voucher and a note of the decision.
Expenses and the director's loan account. The company can repay you for things you paid for on its behalf. Money taken that is not salary, dividend or an expense is a loan from the company to you, and an overdrawn director's loan has its own tax consequences.
The split between salary and dividends is the most common reason a small company owner uses an accountant, because the answer depends on your profit, your other income and the current rates, and it moves at every Budget. A figure that was right last year is bad guidance this year, so you will not find one here. Our guide to small business tax and VAT explains how the pieces fit together, and an accountant with your numbers in front of them earns their fee on this conversation.
What a limited company costs you in admin
This is the honest trade for limited liability. None of it is difficult, but it is fixed: the filings arrive whether you had a busy year or a quiet one.
A confirmation statement, once a year. A short check that what the register says about your company — address, directors, shareholders, what it does — is still true. There is a £50 fee for filing it online.
Annual accounts, once a year, filed with Companies House even if the company has not traded. The deadline is nine months after your company's year end (21 months after incorporation for your first set) and the penalties for missing it are automatic, from £150 rising to £1,500.
A Corporation Tax return to HMRC, with its own deadline and payment date. Companies House and HMRC are separate organisations, and filing with one does not file with the other. You also have to tell HMRC the company is trading within three months of starting.
A business bank account, because the company's money is legally not yours. Our business banking guide covers choosing one.
Records from day one — sales, costs, receipts, and the company's registers of shareholders and of the people who really own or control it.
An accountant, for most people. Not compulsory, but company accounts have a prescribed format and get rejected when they do not meet it.
What falls due, when, and what happens if you are late is in our Companies House guide. If the company is not registered yet, our guide to registering a company walks the steps.
What is public about you
The register exists so that anyone dealing with a company can see who is behind it. It is free, needs no account, and is searchable by anyone for ever.
Published about the company: its name and number, its registered office address, what it says it does, its directors, its shareholders, the people with significant control, its accounts and every document it has filed.
Published about you as a director: your full name, nationality, country of residence, your month and year of birth but not the day, and your service address — where official post reaches you as a director.
That service address is the one that catches people. Put your home in that box, or use it as the registered office, and your home address is on a permanent public database. Taking it down afterwards is a separate process with its own conditions. The fix is an address that is not your kitchen — an accountant's office, premises if you have them, or a registered address service, which is the main thing formation agents sell. Our company formation guide compares how those are bought.
It is not all one way, either. Customers, suppliers and lenders check the register too, and a company with its filings up to date reads as one being run properly.
Sole trader or limited company: when to switch
There is no earnings figure at which you must incorporate, whatever you have been told in a pub or on TikTok. Being a sole trader suits most people at the start and plenty of people for ever. Four things actually move the decision.
The risk gets bigger than you. A lease you have signed, stock bought on credit, staff on the payroll, expensive equipment, contracts with penalties in them. Once one bad month could create a debt larger than you could pay personally, the protection is doing real work.
Your customers require it. Housing associations, public bodies, large contractors and some recruitment agencies will only place work with limited companies. When it happens it is not negotiable, and it is one of the most common reasons people change.
You need funding, or you are bringing someone in. Investors buy shares, so there have to be shares to buy. Some lenders and grant schemes are easier to approach as a company, and shares are a cleaner way to give a partner or a key employee a stake than any arrangement between two sole traders.
Profits get big enough that the tax difference matters. At modest profits, sole trader simplicity usually wins once you count the accountancy fees and the filings. Higher up, the way a company is taxed and the flexibility in how you take money out can outweigh the extra admin, particularly if you can leave some profit in the business rather than needing every penny. Where that crossover sits depends on your numbers and shifts with tax rules, so it is a conversation with an accountant rather than a rule of thumb.
None of it has to be decided today. Switching from sole trader to limited company is routine — thousands do it every year, it takes a fortnight of admin, and customers do not mind.
What this looks like in practice
Take Jamie, a one-man plumbing business in Reading. He charges £70 an hour and bills around 25 chargeable hours a week — the rest of the week goes on travel, quoting and paperwork nobody pays him for. That is roughly £7,000 a month of sales, before the van, the fuel, the tools, the materials, the insurance and the tax come out of it.
He starts as a sole trader, and that is the right call. Registration is free, the paperwork is one tax return a year, and his profits are modest enough that a company would mostly add fees.
Two years on, three things have changed. He has been asked to quote for a maintenance contract with a housing association that only places work with limited companies. He has a van on finance, stock in a lock-up and a part-time apprentice. And the profits have grown to where the tax arithmetic is worth an accountant's time. So he forms a limited company because it suits where the business is at now.
What changes for him: invoices go out in the company's name and the money lands in a company account that is not his; he pays himself a salary and dividends set up with his accountant; he issues 100 shares, all his, so giving the apprentice a slice one day is a ten-minute job; he uses an address service, because he rents his flat; and two filings come round every year whether the diary is full or empty. When the finance company funds the new van they ask him to sign a personal guarantee, so on that one debt he is personally on the hook — and he knows it.
Simply put, choose the structure that suits where you are now. You can always change it later.
The decision turns on your numbers more than on the structure. Create a mini business plan in minutes with Plan.business. Put in your rate, your hours and your costs, and it works out the rest — what you will make, when you break even, and what you need to charge to hit your target. A company's fixed costs, like accounts and filing fees, belong in that picture from day one.
Figures correct as of September 2026. Tax thresholds, fees and rates change; check the linked GOV.UK pages before acting. Prices and costs shown are indicative and vary by area and by what's included.
What is Plan?
Plan is a free business operating system for people starting or newly running a UK business. It walks you, one simple step at a time, from your elevator pitch through brand, product and pricing, to a complete business plan — then uses everything it now knows about the business to help with the basics: logo and brand, marketing, a website, a bank account, funding, insurance, company registration. You can use as much or as little as you want.
Frequently asked questions
What is a limited company in simple terms? It is a business that legally counts as a separate person from you. It has its own name, its own bank account and its own debts, and you own it by holding shares in it. That separation is what protects your personal money, and it is also why a company has more paperwork than working for yourself.
Does limited liability mean I can never lose my own money? No. It caps your loss at what you put into the company, but only where you have not promised anything personally. Banks, landlords and finance companies routinely ask directors of new companies to sign a personal guarantee, and that makes you personally liable for that debt. Always know which guarantees you have signed.
Can I be the only director and shareholder of a limited company? Yes, and most small UK companies work exactly that way. One person owns all the shares, runs the company as its only director, and is usually its only employee too. The three roles still exist separately in law, which matters when you pay yourself or bring someone else in later.
What is the difference between a director and a shareholder? Shareholders own the company and receive dividends from its profit. Directors run it and are legally responsible for its decisions and its filings. One person can be both, and often is, but you can own shares without running anything, or run a company without owning any of it.
How much does it cost to run a limited company each year? Beyond the small Companies House fees (£50 a year for the confirmation statement), the real cost for most people is an accountant to prepare the accounts and the Corporation Tax return. Budget for it as a fixed yearly cost, because the filings fall due whether you traded or not.
Two ways to do this
Work it out yourself, free. Plan walks you through the structure decision as part of setting up — sole trader or limited company, based on your own risk, customers and numbers — one short question at a time, in your browser. Do just this bit and stop there if that is all you need.
Or hand the setting-up over. If you have decided and would rather someone else did the filing and kept the record straight, Plan can introduce you to a formation agent or an accountant when you are ready — and it exports your plan as a spreadsheet they can work straight from.