Setting up a limited company: what you need to know

A limited company (also known as a ‘limited liability company’, LLC, or ‘company’) is a type of business structure where the company has a separate identity from its owners and directors. 

Setting up a limited company offers several advantages to those starting a business. When a company is considered a separate entity, it protects you, the owner, in the case of legal issues. Limited companies are also typically subject to lower corporation taxes than those paid by high-income sole traders.

Generally, limited companies are perceived as more credible than sole proprietorships or partnerships, and have an easier time securing funding from banks and investors as a result.

Setting up a limited company can be more complex than establishing yourself as a sole trader, however. So, here’s what you need to know:

What is a limited company?

The company structure you choose will impact your legal obligations, liability protection, tax liabilities, and ability to raise capital. So, before you decide to start your own limited company, you need to make sure this option is right for you. 

The main way limited companies differ from sole proprietorships is in their legal separation between their shareholders. Limited companies can own assets, enter into contracts, and be held liable in their own right, meaning that shareholders are only liable for the amount they’ve invested. 

While those starting a simple, low-risk business may be better off setting themselves up as a sole trader, establishing a limited company will be best suited for businesses seeking legal protection and looking to grow through larger capital investments. 

Still undecided? Take a look at the peaks and troughs associated with the structure in the table below, and learn more about the difference between Sole Trader vs Limited Company in our comprehensive guide.

Step-by-step guide to setting up

Interested in setting up a limited company, but not sure where to start? We walk you through the process step-by-step, covering every aspect from company registration to navigating ongoing responsibilities. 

1. Choose your company name

Before you get the wheels in motion, you need to decide on a company name. 

Your company name will be the first impression a customer, potential investor, or partner will have of your business. It’s also crucial to your brand’s identity and ability to stand out from the market, making landing on the right one an important first step for business. 

Heads up – unless you qualify for exemption, your name must also end with “Limited” or “Ltd”, to make its identity as a separate legal entity clear.

Stuck for ideas? Take a look at our guide to learn more about how to choose a business name.

Once you’ve chosen a name, you’ll need to check that it hasn’t already been registered or is too similar to an existing one by using the Companies House online search tool. We also recommend conducting a thorough trademark search, through the UK Intellectual Property Office (IPO), to sidestep any potential legal issues before going live. 

2. Register your company with Companies House

Before you register your company, you’ll need several pieces of information at hand, including your company name, email address, director’s and shareholder’s details, and registered office address. If you don’t have a registered office, you can use your home address. However, we’d recommend opting for a virtual office instead, as your company information will be publicly available. 

You’ll also need to state what your business does by assigning a standard industrial classification of economic activities (SIC) code. You can add up to four SIC codes per company, and you can change these at a later date. 

If you’re registering online, simply create an account on Companies House, fill out an online form with the details above, and submit the application. You’ll also have to pay a £50 fee via credit or debit card to process your request, or £71 if you choose to register by post.

3. Get a Unique Taxpayer Reference (UTR) from HMRC

After you’ve registered your limited company with Companies House, HMRC will send you a welcome letter containing your company’s UTR. This 10-digit code is used to identify individuals and organisations for tax purposes, and is essential for filling in your company’s Corporation Tax returns (CT600). 

You can expect your UTR letter to arrive within 10 working days. However, if you haven’t received the code within around 4-5 weeks, we recommend reaching out to HMRC to request it, referencing your registered company number. 

4. Set up a business bank account

Business bank accounts are necessary for keeping business transactions and accounting records organised, processing employee salaries, and receiving credit and debit card payments. They are also essential for lending and support.

As a limited company, you are legally required to have a business bank account, as your business is a separate legal entity and the money it generates must be handled separately. This means any transactions, debts, and taxes will be in the business’s name instead of yours.

To set up a business bank account, you simply need to choose a bank, prepare the relevant documentation, and apply for the account online, by phone, or in person. 

However, it’s important to note that banks impose strict terms on how you can withdraw money from your limited company. You’ll be able to use the account to:

• Take a salary
• Take dividends
• Claim back expenses you’ve personally paid

5. Register for Pay As You Earn (PAYE) and/or Value Added Tax (VAT)

Depending on the circumstances of your limited company, there are separate tax registration obligations to follow to adhere to HMRC. 

If your employees earn over the National Insurance lower earning limit of £123 per week, you’ll need to register for PAYE. This needs to be completed before you pay any workers, and can be done by registering online through the HMRC website. 

Once registered, HMRC will provide you with a PAYE scheme reference number, which you’ll need to use when managing payroll processes. Check out HMRC’s Introduction to PAYE for more information on what needs to be included in your payroll year-end for 2024/25.

You’ll also have to pay value-added tax (VAT) if your business taxable turnover goes above the current VAT threshold of £90,000 for the 2024-2025 tax year. You can also register for VAT voluntarily if you predominantly work with businesses that are already registered, and want to improve your company’s credibility. 

There is no VAT registration cost – the whole process of registering for VAT on the HMRC website is free.

6. Appoint directors and shareholders

A limited company must have at least one director and shareholder. However, the same person can be appointed in both roles.  

The director is the person who is legally responsible for the day-to-day running of the business and ensuring that reports and company accounts are prepared. 

When registering each director, you’ll need to fill out an AP01 or AP02 form, including their full name, date of birth, nationality, occupation, and service address, and send it to Companies House.

Shareholders, on the other hand, are the owners of the company, who exchange capital in exchange for shares to gain a stake in the business. Since shareholders essentially purchase a percentage of the company, their ‘member’ title comes with certain rights and responsibilities.

For each shareholder, you’ll need to provide their full name or company name, address, and the number of shares they are subscribing for to Companies House. 

You’ll also need to confirm that the person named has agreed to act as a director or shareholder for your company by attaching a letter of consent to your application form.

7. Identify people with significant control (PSC)

As of April 2016, UK companies have been required to identify and record PSC during the setup process to make it easy to trace ownership and combat financial crime. 

According to the government, a person with significant control is anyone who:

• Owns more than 25% of the company’s shares
• Holds more than 25% of the company’s voting rights
• Holds the right to appoint or remove the majority of directors
• Has the right to, or actually exercises significant influence or control

For each person with significant control, you will need to document their name, date of birth, nationality, occupation, country of residence, and service address (residential address is not on the public register unless the address is also being used as the service address). 

You will also need to document the nature of control.

8. Prepare your Memorandum and Articles of Association

You’ll also need to prepare some legal documents to ensure your limited company remains compliant. The filings help to officially establish the relationship between the company and its shareholders and directors and become part of the public record at Companies House. 

A Memorandum of Association is a simple document that confirms the first shareholders want to form a company and agree to become members. The document is usually generated automatically when you register online with Companies House.

Articles of Association are a more detailed document that acts as a guideline for how the company will run. It outlines the key information about the company’s governments, including the rights of shareholders and directors, and how dividends are distributed.

Companies House provides “model articles” for limited companies, and you’re able to use these as they are, modify them to adapt to your company’s needs, or create completely bespoke articles if your requirements are more complex.

9. Understand your ongoing responsibilities

Once the wheels of your limited company are in motion, it’s not a case of ‘set it and forget it’. 

There are a number of legal and administrative responsibilities you need to adhere to on an ongoing basis, to keep your company compliant, and to avoid getting disqualified as a company director.

For instance, you’re legally required to file accounts with Companies House every year to provide the registrar with a snapshot of your financial performance and position in the market. Failure to do so can result in drastic consequences, including your company being closed down and you being prevented from being a UK company director for up to 15 years. 

You’ll have to file a confirmation statement on an annual basis, too, to confirm that the information on Companies House is up to date. This statement should include key details about your company’s directors, shareholders, and its registered office address.

To avoid penalties from HMRC, you’ll also have to file a Corporation Tax return (CT600) annually, on top of keeping up with regular PAYE and VAT payments. Filing taxes and submitting information late can result in penalties, so we recommend keeping on top of deadlines to steer clear of costly fines and legal scrutiny. 

Essential documents checklist

Before you set up your limited company, you’ll need a variety of documents at your disposal. 

To help you avoid administrative headaches, we’ve compiled all the documents you’ll require into one scannable list:

✅ Company name

✅ Registered address

✅ Director details

✅ Shareholder information

✅ People with Significant Control (PSC)

✅ Memorandum and Articles of Association

✅ Standard Industrial Classification (SIC) code

✅ Consent to act as a director

✅ Unique Taxpayer Reference (UTR)

✅ Company secretary details (optional)

✅ Shareholders’ agreement (optional)

✅ Insurance documents (optional)

Next steps

Setting up a limited company isn’t light work. Yet, if you’re serious about exploring potential tax advantages, improving the credibility of your company, overcoming funding challenges, and helping shareholders receive precious peace of mind, taking on the mission is a no-brainer. 

By following the steps above and breaking down the process into simple, bite-sized tasks, you can avoid getting overwhelmed. You don’t need to navigate this process on your own, either – there’s an abundance of resources and third-party professionals available to help smooth the bumps along the road. 

If crunching numbers isn’t your thing, you can choose an accountant who specialises in limited companies to help alleviate some of the burden around managing your finances.

Company formation agents offer various packages to guide you through each step of the process, too, while GOV.UK is stacked with useful resources aimed at those starting a limited company, helping you to eliminate guesswork and start your journey with all the information you need to succeed.