A private limited company is one of the most popular business ownership structures in the United Kingdom, offering several advantages not found in other legal forms.
Key Characteristics
Unlike a sole proprietorship (sole trader) or a partnership, a private limited company has a legal identity separate from its owners. This means the company exists independently of the individuals who hold its shares. A practical consequence of this is that a change in ownership or the death of an owner does not affect the company’s existence or legal status—only the ownership of its shares changes. The company ceases to exist only if it is formally liquidated or dissolved. Shares can be freely sold or transferred, unless the company’s articles of association (Articles of Association) state otherwise.
The principle of limited liability means that the owners are not personally responsible for the company’s debts beyond the amount they have invested in its shares. As a result, a private limited company provides excellent protection for the personal assets of its owners and their families, assuming the business is conducted under normal circumstances.
Company Management
In a private limited company, an owner (or co-owner) holds all or part of the company’s shares. They may also serve as a director (director), though this is not mandatory. UK law requires the company to have at least one director, who is often employed by the company as an employee, but this is not a strict rule.
Another role outlined in regulations is the company secretary (company secretary). The secretary typically does not have managerial authority but can represent the company and handle administrative duties. Since 2008, private companies are no longer required to appoint a secretary, making this an optional position.
How to Set Up a Company in the UK?
A private limited company is established by registering with Companies House, the UK’s official register of companies. This process involves submitting the company’s articles of association (Articles and Memorandum of Association), details of its officers (e.g., directors), and a statement of compliance with the Companies Act 2006. Registration is now almost exclusively done online via the Companies House website, with a standard fee of £50 in 2025. Upon successful registration, the company is assigned a unique Company Number.
After incorporation, the company must notify HM Revenue and Customs (HMRC) of the start of its business activities. It will then be registered for tax purposes and, if it employs staff (including the director), as an employer under the PAYE (Pay As You Earn) system. A functioning company should also open a bank account to manage its financial transactions.
Taxes
The company pays Corporation Tax on its profits. As of 2025, the standard rate is 25% for profits exceeding £250,000 annually, while smaller businesses with profits up to £50,000 are taxed at 19%, with a sliding scale between these thresholds. The company also deducts income tax and National Insurance Contributions (NIC) from employee salaries, including the director’s, if they exceed the tax-free allowance.
If the company’s turnover exceeds the VAT threshold (£90,000 in the 2025/26 tax year), it must register for VAT and account for this tax, with the standard VAT rate at 20%.
When profits are distributed to shareholders as dividends, a dividend tax may apply. For UK residents in 2025, the rates are 8.75% for income taxed at the basic rate, 33.75% for the higher rate, and 39.35% for the additional rate. The tax-free dividend allowance is currently £500 per year.
Reporting Requirements
A private limited company must submit various documents to the relevant authorities. Annually, it files a Confirmation Statement (formerly Annual Return) and financial accounts (Accounts) with Companies House. Small companies may qualify to submit simplified Micro-Entity Accounts.
To HMRC, the company submits an annual Corporation Tax Return along with its financial statements. If it has employees, even just the director, it must report payroll details through the PAYE system using Full Payment Submission (FPS) and Employer Payment Summary (EPS) declarations.
