How to set up a limited company

What is a limited company?
Why set up a limited company?
When should I set up a limited company?
Can I set up a limited company on my own?
How to set up a limited company step by step
How much does it cost to set up a limited company?
How long does it take to set up a limited company?
When should I change from a sole trader to limited company?

What is a limited company?

A limited company (sometimes called a corporation) is a legal entity that exists separately from its owners. This structure offers several advantages, including limited personal liability, potential tax efficiencies and a clearer brand identity.

By forming a limited company, shareholders are only responsible for company debts up to the value of their investment — helping to protect their personal finances.

A limited company can enter contracts, own assets and operate under its own name. It must follow specific reporting requirements, such as filing financial statements and meeting corporate governance standards. It can also issue shares to raise capital and continues to exist regardless of changes to its directors or shareholders.

Why set up a limited company?

If you’re weighing up being a sole trader vs a limited company, here are some key benefits:

Limited liability

By setting up a limited company, separates the personal assets of stakeholders from the company’s accounts. This helps mitigate the personal financial risk for business owners and protects personal finances in the case of company debts.

Brand identity

Being a sole trader ties your business directly to you. By setting up a limited company, directors and shareholders can separate themselves from the brand, allowing the company to build its own identity. This structure also helps create a more professional and credible image.

Access to capital

By setting up a limited company, founders can sell shares to raise investment. This can fuel growth and is especially appealing for businesses aiming to scale.

Employee benefits

If you have employees, setting up a limited company can make it easier to offer benefits such as pension schemes or stock options — helping you attract and retain talent.

However, it’s worth remembering that running a limited company comes with extra administrative and legal responsibilities, as well as the costs of setting up a limited company. Make sure the timing is right for your business before making the switch.

Getting professional advice — or speaking to your bank — can help you decide whether becoming a limited company is the right step.

When should I set up a limited company?

Deciding when to set up a limited company isn’t always straightforward, but there are clear signs that your business may be ready.

Start by reviewing your goals. If you’re planning for growth or looking for investment, setting up a limited company may be the right move. But if you’re running a more local or skills based venture, the added legal and administrative responsibilities may outweigh the benefits.

Your revenue and trading performance also matter. Businesses with sustainable income are typically better candidates for incorporation, as they can demonstrate growth potential.

You should also factor in the cost of setting up a limited company, including incorporation fees, ongoing admin, and any legal or accounting support you may need.

Ultimately, the best time to make the switch is when your business is financially stable, has clear ambitions, and you’re ready to take on the responsibilities that come with running a limited company. Considering your goals and circumstances will help you make the right decision.

Can I set up a limited company on my own?

Yes — you can set up a limited company on your own. You’ll act as the company’s director, and if you’re the only owner, you’ll also be the sole shareholder.

How to set up a limited company: step by step

• Choose the type of limited company

• Pick your company name

• Appoint at least one director

• Decide who the shareholders will be

• Confirm the records you’ll need to keep

1. Choose which type of limited company to set up

There are two types of limited company: private and public. Choosing the right structure is an important first step, as it determines the following:

• How your company is owned
• How shares can be transferred
• What information you must disclose
• How easily you can raise capital

When deciding, focus on your long term goals, funding needs, and how comfortable you are with regulatory requirements — all of which will influence which type of limited company is the best fit.

What is a private limited company?

A private limited company is usually owned by a smaller group of shareholders, such as founders, a few investors or even family and friends. It has fewer regulatory requirements than a public limited company and doesn’t need to publicly disclose its financial or ownership information. Private limited companies can raise capital by issuing shares, typically to existing shareholders.

What is a public limited company?

A public limited company has shares that can be freely traded and owned by a wide range of investors, including the general public. These companies face stricter regulation and must publish financial and governance information. They generally have greater access to capital and are well suited to larger businesses aiming for significant growth.

2. Choose your company name

Choosing a limited company name is an important decision — it represents your brand and shapes how your business is perceived.

What to consider when choosing a company name

Make sure your chosen name is available and unique to your sector by researching it thoroughly online. Also think about relevance to your business, future scalability, cultural sensitivity, and whether the name will still feel suitable long term.

If you plan to expand beyond your local area, check how the name translates or is interpreted in different regions, as this can influence how customers perceive your brand.

3. Appoint at least one company director

Every limited company needs a company director. It’s important to make sure the director meets any legal requirements and that the director’s appointment is registered with Companies House.

For everyday transactional banking, our Small Business Banking Account and Business Banking Account products could support your company’s needs. Visit our business accounts page to compare your options.

4. Decide who will be your company shareholders

Your shareholders play a key role in shaping the direction of your business. Consider how many shareholders you need, what ownership percentages make sense, and whether you want to bring in external investors.

5. Confirm what records you need to keep as a limited company

You’ll need to keep several key records to meet your legal and regulatory obligations as a limited company. These include annual accounts, shareholder information, statutory registers and tax records. Staying on top of these requirements is essential for ongoing compliance.

How much does it cost to set up a limited company?

The cost of setting up a limited company in the UK varies depending on your needs, but common expenses include:

• Basic incorporation fee

  This basic fee for setting up a limited company with Companies House will cover the registration of the company name and some basic details.

• Companies House fee

  A small additional charge for handling your registration documents.

• Registered office address

  Every limited company must have a registered office. This can be your home address, but some owners choose a paid registered office service for added privacy.

• VAT registration

  If you expect to reach the VAT threshold, you’ll need to register. Registration is free, but you may want to budget for ongoing accounting and compliance support.

• Accounting fees

  Running a limited company involves more complex financial and legal responsibilities than operating as a sole trader. Many founders use an accountant or accounting software to stay compliant. It’s also important to choose a business bank account that fits your company’s needs.

How long does it take to set up a limited company?

Timelines vary, but online applications are usually the quickest and can be processed in as little as one day. You’ll need to provide three pieces of personal information for yourself and any shareholders — for example, your National Insurance number, passport number and phone number.

Paper applications take longer and can stretch to a couple of weeks, depending on postal and processing times.

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

The right time to set up a limited company depends on your business goals, revenue and overall financial stability. Many owners find that operating as a sole trader works well in the early stages, but once your business is ready to grow, incorporating can be the natural next step. When you reach that point, HSBC UK can help support the financial needs involved in transitioning to a limited company.

The value of any tax benefits described depends on your individual circumstances. Tax rules may change in the future.

Find out more on Sole Trader Vs Limited Company.

FAQ

What is a private limited company?

A private limited company (Ltd) is legally separate from its owners. Shareholders’ liability is limited to the value of their shares, protecting their personal assets from business debts. Shares can’t be traded publicly, and ownership is often held by a small group, such as founders, family members or business partners.

What is meant by a limited company?

A limited company is a business structure where the company is its own legal entity. It can own assets, enter contracts and is responsible for its own debts. “Limited” refers to shareholder liability being restricted to their investment, helping safeguard personal assets.

How to start a limited company?

To start a limited company, register with Companies House by choosing a unique company name, appointing at least one director and preparing your memorandum and articles of association. Once registered, you’ll also need to set up your Corporation Tax account with HMRC.

How to close a limited company?

You can close a limited company either by applying for a voluntary strike off through Companies House if the business is no longer trading, or by entering a formal liquidation process if the company has debts. Before you apply, you’ll need to settle all outstanding taxes, debts and obligations. You must notify HMRC and Companies House, submit final accounts and file a final Company Tax Return.

How to register a limited company?

You can register a limited company online through the Companies House website. You’ll need to provide your company name, registered office address, details of your directors and shareholders, and your SIC code (which describes what your business does). Once your application is approved, you’ll receive a Certificate of Incorporation confirming your company’s legal status.