What Is a Limited Company? UK Definition, Types & Benefits

Definition of a Limited Company

A limited company is a legally registered business that exists separately from its owners. It is registered with Companies House and offers limited liability to shareholders.

Standard Functions and Uses of a Limited Company

Small to large businesses commonly use a limited company to leverage features such as:

• Legal separation from their owners,
• Limited liability protection,
• Tax planning flexibility, and
• Enhanced professional credibility when dealing with clients, suppliers, lenders, or government institutions.

Types of Limited Companies in the UK

There are six main types of limited company structures used for business and property management in the UK. Each structure offers limited liability protection but is suited to different goals, industries, and regulatory needs. Below is an overview of the most common types of limited companies:

• Private Company Limited by Shares (LTD) – The most popular structure for startups and small businesses. Profits are distributed to shareholders in the form of dividends.
• Public Limited Company (PLC) – Can raise capital by offering shares to the public. Typically used by larger businesses and listed on a stock exchange.
• Company Limited by Guarantee – Commonly used by non-profits, charities, and membership organisations. Instead of shareholders, the company has guarantors.
• Limited Liability Partnership (LLP) – Combines a partnership's flexibility with a company's limited liability. Often used by accountants, solicitors, and consultants.
• RTM Company (Right to Manage) – Formed by leaseholders who take over management responsibilities for their residential building under the Right to Manage legislation.
• Property Management Company – Created to manage multiple properties under one legal entity, often used by landlords or residential block owners.

FAQs

What is a limited company in the UK?

A limited company is a type of legal business structure that creates a separate legal entity from its owners. This means the company can own assets, enter into contracts, and incur debts in its own name. One of the key benefits of setting up a limited company is limited liability—your personal finances and assets are protected if the company faces financial or legal problems. This structure is regulated by Companies House under the Companies Act 2006.

What is the fastest way to register a limited company in the UK?

The quickest way to register a limited company in the UK is by using an online company formation agent officially registered with Companies House. As a verified agent, Your Company Formations offers a streamlined digital application process that takes just 5 to 15 minutes to complete. Once submitted, your company is typically incorporated within 3 to 4 working hours, subject to Companies House processing times.

Can I run a limited company alone?

You can run a limited company as a sole director and shareholder, often called a personal service company. UK company law allows one individual to take on both roles, meaning you have complete control over decision-making while still benefiting from limited liability protection and the professional status of incorporation.

When should I switch from a sole trader to a limited company?

It is generally advisable to switch from a sole trader to a limited company when your annual profits exceed £30,000, or when you begin working with larger clients, such as corporations, government bodies, or local authorities. These organisations often require formal business structures for procurement and contracts. A limited company also becomes more appealing when you need business financing, want to build a transferable brand, or are preparing to hire staff.

Are there tax benefits to being a limited company?

Yes, operating as a limited company can offer tax efficiencies. Unlike sole traders, limited company owners can pay themselves through a combination of salary and dividends, which are taxed at different rates. This can result in lower overall tax liability depending on your income level. Additionally, the company may be able to claim deductible business expenses, and profits are taxed under corporation tax, not personal income tax.

Can a limited company be sold or transferred?

Yes, a limited company is a transferable business structure. Ownership can be changed by selling shares or transferring control to new directors or shareholders. This makes it easier to sell the business, bring in investors, or pass it on to family members or co-founders. Because the company exists as a separate legal entity, its contracts, assets, and liabilities remain with the company even as ownership changes.