Setting up a business has always been the most empowering decision for an entrepreneur. And once you take that decision the next question crops up – What should be the type of the Company? Well, there are different types of company structures, but the most popular type of limited company in the United Kingdom is a Private Limited Company - limited by shares.
In this article, you’ll have all the answers to questions in your mind regarding setting up and running a limited company and how to make the most of your business decision.
What is a Limited Company?
A limited company is a legal entity, which is not held by a single owner, but by a shareholder or multiple shareholders. Also known as the Limited Liability Company, limited companies allow the founder/s to disassociate their own assets and finances from the business itself. Because of which, the Limited Company can enter into agreements on its own name and is responsible for its actions.
The company is managed by a Director who is appointed by its shareholders. Only in the case of a single shareholder, that person automatically becomes the Director.
It is important to note that the company must have at least one shareholder and there’s no limit set for maximum shareholders. However, if you are a single shareholder then, you’ll own 100% of the company. The shareholder receives a certain amount of profit made by the company depending on the number of shares they own. This profit is distributed in the form of Dividends.
Limited Company Advantages and Disadvantages
| Advantages | Disadvantages |
|---|---|
| Quick & Easy to setup a Limited Company | A lot of administrative responsibilities such as filing tax returns, managing and claiming expenses and business accounts |
| A better take-home pay and complete control over your finances compared to Umbrella Company | Maintaining accounts and book-keeping can be a little complex and time-consuming |
| Have complete control of your business and its financial affairs – no risk of being tied up in a third-party administrator or umbrella company | Having Directors and shareholders involves taking their ideas, opinions, and suggestions before making a decision. A little difficult to take independent decisions. |
A Limited Company is a business structure set up and owned by the contractor. As the director of the company, the contractor has control over their finances, including the ability to pay themselves a salary and dividends in a tax-efficient way. This structure offers greater flexibility, allowing contractors to claim a wider range of business expenses. However, running a limited company comes with added responsibilities, such as managing accounting, tax filings, and ensuring compliance with HMRC regulations.
An Umbrella Company, in contrast, acts as an intermediary between the contractor and the client. The contractor becomes an employee of the umbrella company, which handles payroll, taxes, and compliance on their behalf. This structure reduces the contractor’s administrative burden but typically results in lower take-home pay compared to a limited company, as the umbrella company deducts fees, taxes, and National Insurance contributions before paying the contractor.
Types of Limited Companies – Know What’s Best for You
Private Limited Companies – When you say ‘limited company’ it primarily refers to Private Limited Company in the UK and is also the most favoured set-up for small businesses and start-ups. In this business type, the company cannot offer ‘shares’ to the general public.
Public Limited Companies (PLCs) – This type of company can offer ‘shares’ to the general public and raise capital. However, to get shares traded on the stock exchange, a PLC must have shares issued to a value of at least £50,000. This business structure is preferred for larger and more established businesse.
How to Choose a name for the Limited Company?
NAME, like yours and mine have a very crucial role to play in creating a brand identity for a business. And when it comes to choosing the name for a limited company, which is
Once your Limited Company name is registered with the Companies House, your company’s name is protected by the law and no one else but you can use the registered name.
How to Register and Setup a Limited Company?
Step 1: Choose a name for your limited company and check its availability, along with the registered addressNote: Limited Companies can be registered online or via post. Moreover, you can go through the process yourself or hire an accountant or solicitor to go through the process on your behalf.
What tax do you pay as a Limited Company?
On incorporation, limited companies need to register for Corporation Tax, which is 19 percent deduction of the profit earned and does not include a tax-free allowance. It has to be paid within 9 months and 1 day of your company’s formation day.
As of April 2025, the UK Corporation Tax rate stands at 25% for companies with profits above £250,000. For companies with profits between £50,000 and £250,000, a marginal relief applies, effectively reducing the tax rate. Companies with profits under £50,000 continue to benefit from the small profits rate of 19%. These rates are set to remain until at least 2029, providing stability for businesses planning long-term investments.
Is a Limited Company Tax efficient?
Setting up a limited company remains a tax-efficient option for many businesses. As of April 2025, companies with profits under £50,000 pay a small profits rate of 19% corporation tax, while those with profits between £50,000 and £250,000 benefit from a marginal relief rate, reducing the effective tax rate. Companies with profits over £250,000 pay the main rate of 25%. Directors can further minimise personal tax and National Insurance Contributions (NIC) by paying themselves a mix of salary and dividends, which remains a popular strategy for optimising take-home pay.
Limited Company Dividends – Making the Most of It
Dividend as you know is a share of limited company’s profits given to (legal) shareholders. To collect dividend after paying the tax, you need to create a dividend voucher with details of company name, dividend amount and the name of the person taking the dividend.
It is recommended that you limit dividend payments to once or twice a year, to avoid attracting the unwanted attention of HMRC.
How to Setup A Bank Account For Limited Company?
Now that you are all set up, its time you open a dedicated business account for your limited company, which usually takes 7-10 days to open. Remember, unlike sole traders your personal and business accounts have to be kept separate. Here is a list of important documents required to open a bank account for a limited company:
Setting up a limited company is a relatively expensive affair and a tedious process. Hiring an expert can help make the process seamless and hassle-free while saving on unnecessary expenses. If you need any help, please feel free to write to us on [email protected]