The private limited company is the most popular way to incorporate a business in the UK. Here we look at the key features this type of business structure provides.
How many limited companies are there in the UK?
- According to the latest Companies House data, there are over 4.4 million companies on the register (2020). 96% of this number was made up of private limited companies.
- There are around 2 million actively trading companies currently. The rest are ‘dormant’.
- Over 660,000 new companies were incorporated between 2019-2020. Over the same time period, almost 560,000 companies were dissolved.
- The average age of a company is 8.7 years.
What is a private limited company? Key Facts
- Companies House, the registrar of companies, oversees the incorporation and running of all limited companies in the UK. The Registrar holds details about every company in the UK – both active and dormant.
- The liability of company directors is limited, unlike the sole trader business structure.
- A limited company is a distinct legal entity from its shareholders and directors. This is one of the reasons why you must have a separate bank account for your company.
- The financial affairs of a limited company, and that of its directors is completely separate, unlike the sole trader route. This means that directors are not responsible for the company’s debts, unless they have been negligent.
- Corporation tax is charged on the profits of limited companies.The current rate is 19% (2020/21),
- Private limited companies must submit a company accounts each year to both Companies House and HMRC.
- Company directors must fill in an annual self assessment form to work out their income tax liabilities for the previous tax year.
- If your turnover is greater than £85,000 over a 12 month period (2020/21 tax year), you must register your company for Value Added Tax
- All companies must provide Companies House with a Confirmation Statement each year – a snapshot of your company affairs at a moment in time.
- Company directors have a number of legal and financial responsibilities to attend to, and more administration to deal with than self employed people.
- The vast majority of limited company directors appoint accountants to deal with their tax affairs, and to deal with HMRC and Companies House.
- A limited company can be formed with just a sole director. Since the implementation of the Companies Act 2006, the company secretary is an optional appointment.
- In some cases, having a limited company can provide a ‘professional’ appearance for your business, and it may be a mandatory requirement in some industries.
- Private limited companies cannot offer their shares for sale on the stockmarket – although public limited companies (PLCs) can.
- You can read more about the steps involved in the limited company incorporation process here, and also a good legal overview of all the main business structures.
- In order to incorporate a private limited company, you will need to submit Application Form IN01, and the Memorandum and Articles of Association to Companies House. You can set up a company online – including all the required paperwork – for a £13 fee.
- If you require some help with the incorporation process, find out about our long-term company formations partner, here.
Before you start
When making the choice of business structure, you should always consult a professional, as each business has different needs.
There is no ‘right’ or ‘wrong’ business structure to use -it all depends on what you do, your financial situation, the industry you are in, and how large your operation is likely to become.