Aside from the sole trader route, the limited liability company is the most popular business structure for trading in the UK.
With a limited company, the liability of company directors is limited, as the company’s finances are separate from the business owner’s personal finances.
This means that your company’s debts belong to the company, not to you personally.
This is not the case for those who run their business as a sole trader (self-employed). Sole traders are personally liable for any debts or liabilities incurred by the business.
Limited company shareholders are not personally liable for any debts incurred by the business. However, banks may still ask company directors to provide loan guarantees for commercial loans or credit extended in the company’s name, so it’s not complete protection in every circumstance.
In this guide, we explain what a limited company is, how to form one, the associated costs, and the information you’ll need to complete the incorporation process.
What is a limited company?
A private limited company is a distinct legal entity in its own right. The company can own property, enter into contracts, take on loans, and continue to exist even if its owners change.
This separation between the individual and the business is one of the main attractions for business owners who decide to incorporate.
In simple terms, the company pays tax on its profits, while directors and shareholders pay personal tax only on the money they take from it.
This separation offers flexibility, enhanced financial planning opportunities, and protection for directors in case something goes wrong with the business.
How many limited companies are there in the UK?
- According to Companies House, there are over 5.35 million companies on the register (March 2025). Of these, 95% are private limited companies.
- Most companies on the official register are not actively trading. Around 2.1 million are actively trading limited companies.
- The number of companies has grown steadily over the decades. In the late 1980s, fewer than one million were registered. The rise of online incorporation and digital banking has made forming a company faster and cheaper than ever before.
- Between March 2023 and March 2024, over 890,000 new companies were incorporated, while nearly 660,000 were dissolved. The average age of a UK company is around 8.7 years.
Private limited company key facts
Companies House
Companies House is the registrar for all limited companies in the UK. It records the details of every company, both active and dormant, and maintains a public register (which you can access online).
Limited liability
The company’s debts and obligations belong to the company, not to its owners. This is known as limited liability, which means if the business fails, its owners are not responsible for its debts (unless they have been negligent or fraudulent).
Separate finances
A limited company is a separate legal entity from its owners. It should have its own business bank account, and you should avoid mixing company and personal funds.
Accounts and tax
Limited companies must file annual accounts with both Companies House and HMRC. They pay Corporation Tax on their profits, while directors pay income tax through Self Assessment on any salary or dividends they receive.
VAT registration
If the company’s annual turnover exceeds £90,000 (2025/26 threshold), it must register for VAT. Many smaller companies choose to register voluntarily, allowing them to claim VAT on expenses and also to present a professional image.
Directors and secretaries
You can form a company with just a sole director. There is no obligation to appoint a secretary, although larger companies u
Professional image
In many industries, trading as a limited company looks more professional. It can also open doors to contracts that are unavailable to sole traders, particularly in the fields of consultancy and IT contracting.
Registering a new company – the formation process
Companies House is responsible for registering all limited companies in the UK and maintaining the official register of companies. Before you can start trading as a company, you must complete the incorporation process.
Registering a company is now quick and straightforward, but there are several ways to do it. The right approach depends on how confident you feel and whether you’d like some help along the way.
Company formation options and costs
There are three main ways to form a limited company. Whichever route you choose, the end result is the same — your company becomes registered at Companies House and ready to trade.
1) Form a company directly with Companies House
This is the most straightforward route if you want to handle everything yourself.
You can apply online via Companies House for £50. The process usually takes less than 24 hours. You’ll need details of your directors, shareholders, registered office, and proof of ID.
If you prefer to send a paper application using form IN01, the cost is £71 and the processing time is 8–10 working days. Postal applications are now rare, but they are still helpful for more complex incorporations with bespoke Articles.
2) Use a formation agent
If you’re setting up your first company, you might prefer some help. Formation agents guide you through each step and double-check your details before submitting them to Companies House.
They often provide useful extras, such as registered office services, mail scanning, and assistance with opening a business bank account.
Costs vary depending on the package. Some agents advertise very low prices but make money from optional add-ons.
Our company formations partner, 1st Formations, offers a range of packages starting from £52.99 — see their options here. Another alternative is Icon Offices.
3) Hire an accountant
Most limited company owners hire an accountant to manage their books and tax affairs. Many accountants will include company formation as part of their onboarding process, often for a small fixed fee or even at no additional cost.
This can save time and ensure that all your registrations (Corporation Tax, VAT, PAYE) are handled correctly.
If you expect to issue multiple share classes or want to tailor your Articles of Association, professional help is particularly useful.
Other things to bear in mind
- If you form your company online with Companies House, it will be automatically registered for Corporation Tax at the same time.
- If you don’t use the Companies House online service, you’ll need to register for Corporation Tax separately within 3 months of starting to trade.
- If you plan to pay staff or yourself via salary, register as an employer for PAYE payroll.
- Remember to register for VAT if your business reaches the turnover threshold.
The formation cost is minimal, so price shouldn’t influence which route you take. If you’re confident, you can incorporate directly, but if you’re not, we recommend using a formation agent or an accountant.
8 things to consider before you incorporate
Is going limited the right choice?
Have you compared the pros and cons of being self-employed versus running a company? There are significant differences in tax treatment, admin, and flexibility, so it’s worth checking before you commit.
What type of company do you want?
Most small businesses form a private company limited by shares, but other structures also exist, such as companies limited by guarantee (for non-profit organisations), limited liability partnerships (LLPs), and public limited companies (PLCs).
A private unlimited company is rare and removes shareholder protection entirely.
Choosing a name
You can use almost any name you like, provided it isn’t too similar to an existing company or uses restricted words. A professional name that reflects your brand is always a safe bet. Read our guide to company naming rules.
Company addresses
Every company must have a registered office address within the same UK jurisdiction where it’s incorporated.
Directors and people with significant control can use separate service addresses to keep their home details private.
Many third parties offer these address services for a modest annual fee and will forward or scan official mail on your behalf.
Company officers
Every company must have at least one director. You can also appoint a company secretary if you wish, but this is no longer compulsory. Make sure you understand the responsibilities and duties of a company director before accepting the role.
Shareholders
All companies limited by shares must have at least one shareholder. Think carefully about how shareholdings are distributed, and seek advice if you plan to issue different share classes.
A shareholders’ agreement is a good idea when more than one person is involved.
People with significant control
Companies House must be told about anyone who owns or controls 25% or more of the company’s shares or voting rights. This information must be submitted during incorporation and updated if it changes. Read more about PSCs.
SIC codes
All companies are assigned Standard Industrial Classification (SIC) codes to identify the type of activity they undertake. You can browse the list of SIC codes to find the most appropriate description.
Documents you need to register a limited company
- Memorandum and Articles of Association – together they confirm the company’s creation and outline how it will be run. Online applications generate a Memorandum automatically, and most companies adopt the standard model Articles. Bespoke Articles can be drafted if needed.
- Form IN01 – includes details of directors, registered office, shareholders, share capital, company secretary (if any), and PSCs. The online form captures this automatically.
If your chosen company name contains restricted words, you may need a supporting letter or approval from the relevant body. For most applicants, no extra paperwork is required beyond the standard forms.
Information to have ready
For the company
- Proposed company name
- Type of company (usually private limited by shares)
- Registered office address and jurisdiction
- SIC code(s)
- Statement of capital and share details
- Names and addresses of all subscribers and their shareholdings
- Details of all PSCs and their type of control
- A contact email address for the company (required since March 2024)
For individuals
- Full name and any former names
- Service address (appears on the public record)
- Residential address (kept private if a service address is provided)
- Nationality and date of birth (only month and year are shown publicly)
- Occupation
Ongoing requirements of limited companies
- The company must be registered at Companies House.
- Annual accounts must be filed at Companies House each year.
- A Confirmation Statement must be submitted annually. This costs £34 online or £62 by post.
- HMRC must be notified of profits and taxable income on an annual basis.
- A Corporation Tax return (CT600) must be completed and any tax paid within 9 months of the company’s year-end.
- Employees, including directors, pay income tax and National Insurance on their earnings.
What about ongoing running costs?
Once the company is formed, the ongoing costs are relatively modest but higher than those of a sole trader.
The main expenses to factor in include:
- Annual filing fee for the Confirmation Statement (£34 online)
- Accountancy fees (higher than for sole traders due to more complex reporting)
- Payroll and software costs if you pay salaries via PAYE
- Subscription fees for accounting software
- A separate business bank account, which may have a small monthly charge
For most small companies, these costs are manageable, and the professional benefits of limited status often outweigh the extra administration involved.