What is a limited company? UK business structures compared
What a limited company is, how it differs from a sole trader, partnership or public limited company, and how to choose between them.
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Sole trader vs limited company
How the two main UK business structures differ, and how to decide which one suits you.
What is a sole trader? Meaning and examples
Understand what a sole trader is, see everyday UK examples, and learn about employing staff, registering with HMRC and choosing a business name.
What is a public limited company (PLC)?
A UK guide to PLC share capital, directors, trading certificates and the differences from a private limited company, with registered examples.
Sole trader vs limited company 2026/27: which is more tax efficient now the dividend rates have risen?
The Budget 2025 dividend tax rise (effective 6 April 2026) has narrowed the tax advantage of running a limited company. Worked numbers at £40k, £60k and £100k profit, the new indifference point, and the non-tax factors that still matter.
What is a limited company?
A limited company is a business that is legally separate from the people who own it. It is run by one or more directors and, in the usual case, owned by shareholders. A company must have at least one director, and a company limited by shares must have at least one shareholder. One person can be both, so a company can have a single owner who is also its only director.
Limited liability is the headline feature. Owners are responsible for the company's debts only up to the value of their financial investment, which for a shareholder is the amount they agreed to pay for their shares. A sole trader, by contrast, is personally responsible for all the debts of the business.
The company pays Corporation Tax on its profits. For 2026/27 the rate is 19% on profits up to £50,000 and 25% on profits over £250,000, with marginal relief between the two. Money taken out is taxed again on the person: salary as employment income, dividends under the dividend rules, and so on. The company must file annual accounts and a confirmation statement at Companies House and a Company Tax Return with HMRC.
Official guidance: GOV.UK: Set up a private limited company; GOV.UK: Set up a business; GOV.UK: Corporation Tax rates
What does Ltd mean, and what is a private limited company?
Ltd is short for Limited. A UK private limited company's registered name must usually end in 'Limited' or 'Ltd' (Welsh companies can use 'Cyfyngedig' or 'Cyf'). Most private limited companies are limited by shares, which means the company raises money by selling shares and the shareholders share in profits through dividends.
The other kind of private company is limited by guarantee. It has guarantors instead of shareholders and usually belongs to charities and non-profits that reinvest profit rather than paying owners. A guarantor's liability is limited to the amount they have guaranteed.
A public limited company (plc) is different. It can be set up to offer its shares to the public and must have allotted share capital of at least £50,000 before it can trade. Almost every small business that says it is a limited company means a private company limited by shares.
Official guidance: GOV.UK: Types of limited company; GOV.UK: Choose your shareholders; GOV.UK: Life of a company, share capital
What does running a limited company involve?
The company needs a registered office address in the UK that is a physical address where post can be delivered and delivery can be confirmed; a Royal Mail PO Box no longer qualifies. It also needs a registered email address. Directors' names and service addresses appear on the public register at Companies House.
The directors are legally responsible for keeping company and accounting records, filing accounts and tax returns and keeping Companies House information correct, even if an accountant does the work. There are also rules on how money can be taken out of the company as salary, dividends or a director's loan.
Official guidance: GOV.UK: Registered office addresses
Sole trader or limited company?
A sole trader is the simplest machine: you are the business, profits are yours, taxed once through Self Assessment, minimal filing. A limited company is a separate legal person: limited liability, Corporation Tax on profits, and a second decision about how to pay yourself, with more filing and less privacy in exchange.
Neither is 'better'. At modest profits, simplicity usually wins. As profits grow past what you spend, or risk grows past what you can shoulder personally, the company case builds. Partnerships and LLPs cover the multi-founder versions of the same trade-offs.
The factors that actually decide it
Tax is only one axis, and rarely the decisive one at the start. Liability: does the work carry risk a company should absorb? Credibility: do your target customers expect to contract with a company? Investment and growth: outside money and shared ownership need share capital. Profit retention: will you leave money in the business, where Corporation Tax rates beat higher-rate Income Tax?
A contractor whose clients require a limited company has had the decision made for them. A sole trader earning what they spend, serving the public, has too — the other way.
Changing your mind later
Sole trader to company is a routine, well-trodden incorporation, best done deliberately at a year end, with the trade, assets, and any goodwill moved properly. Company back to sole trader is rarer and messier. Start simple and incorporate when the numbers or the risk justify it; that ordering is cheap. The reverse is not.
What to avoid is drift: incorporating because someone said so, then running the company like a personal bank account. A company only delivers its benefits when run as one.
Getting the decision made properly
This is a numbers-and-facts decision that takes one structured conversation: expected profits, what you need to live on, risk profile, customers, and plans. We run it with every new-business client before anything is registered: structure first, registrations second, because the structure determines which registrations you need at all.
Book the 30-minute call before you form anything. Unwinding a wrong structure costs multiples of choosing the right one.
Frequently asked questions
What is a limited company?
A limited company is a business that is a legal entity separate from its owners. Owners' liability for the company's debts is limited, usually to what they paid for their shares. The company pays Corporation Tax on its profits and its directors must file accounts and a confirmation statement at Companies House.
What does Ltd stand for?
Ltd stands for Limited. A private limited company's registered name must usually end in Limited or Ltd. It tells people that the owners' liability is limited.
What is the difference between a private limited company and a plc?
A private limited company is the usual small business structure. A public limited company (plc) can be set up to offer shares to the public and needs allotted share capital of at least £50,000 before it can trade. A plc has stricter rules and is rarely the right fit for a new business.
What is the difference between limited by shares and limited by guarantee?
A company limited by shares is owned by shareholders who can receive dividends, and their liability is limited to what they paid for their shares. A company limited by guarantee has guarantors rather than shareholders, usually reinvests its profits and is typically a non-profit or charity.
Can one person own and run a limited company?
Yes. A company can have a single shareholder who is also its only director, and that person then owns 100% of the company. A company must have at least one director, who must be 16 or over.
At what profit level does a limited company make sense?
There is no universal figure: the crossover moves with tax rates and depends heavily on whether profits are retained in the company or drawn out. The honest rule: if you spend everything you earn, the tax case for a company is thin; if you retain profits or carry real liability risk, run the comparison properly.
Does a limited company protect my personal assets?
For the company's debts, broadly yes. That is what limited liability means. But banks and landlords often require personal guarantees, and directors remain personally exposed for wrongful trading and unpaid PAYE/VAT in misconduct cases. It is real protection with real edges.
Can I be employed and run a business at the same time?
Yes, both structures coexist with employment. Your employment tax position continues under PAYE; the business side is reported separately. Check your employment contract for restrictions. That constraint is contractual, not tax.
What about a partnership with my spouse?
Partnerships (and companies with spouse shareholders) can share income across two sets of allowances and bands legitimately, where the arrangement is real: genuine ownership, genuine involvement or capital. Structures that exist only on paper attract exactly the attention you would expect.