Every business, whether a one-person show or a large corporation, needs a legal structure. New entrepreneurs can start a business as a sole trader (freelancer) or a limited company. Today, we’ll focus on limited companies.

This guide will discuss:

  • What is a limited company?
  • How does a limited company work?
  • How do I set up a limited company?
  • What are the benefits and drawbacks of a limited company?
  • What records do I need to keep for a limited company?

What is a limited company?

A limited company is a business structure where the company is legally separated from its owner, meaning it has its own identity. Even if the company only has one person involved as the only shareholder (owner) and director, the company is still a separate legal entity.

How does a limited company work?

In a limited company, the company’s assets (cash or valuable items) and liabilities (debts) are separate from your own. As a result, if the business goes bust, the owner would only stand to lose the money that they put into the company. Their personal assets would be safe. 

A limited company can either be “limited by shares” or “limited by guarantee”. A company limited by shares is owned by one or more shareholders and has at least one director managing it. 

On the other hand, companies limited by guarantee are owned by one or more guarantors (someone who agrees to pay your expenses if you can’t) and managed by at least one director. The difference between shareholders and guarantors is that shareholders won’t step in and pay the company’s debt like a guarantor would.

You can also transfer ownership of a limited company easily, and many of these companies get passed down through generations. Unlike a public company where anyone can buy shares, you decide who becomes a shareholder of your limited company.

How do I set up a limited company?

First, you need to register your limited company with Companies House. This process is called “incorporation”.

Either register your limited company online or via post. You can choose to do this yourself or pay an accountant or solicitor to register your company on your behalf.

When registering, you will need to provide:

  • The company’s registered name and address.
  • Names and addresses of directors and, if applicable, the company secretary.
  • Details of shareholders and capital (your company’s wealth).

Countingup also has a step-by-step guide on how to register a limited company.

What are the benefits of a limited company?

If you’re unsure of whether you should register your business as a sole trader or limited company, we’ve listed some benefits of starting a limited company:

Limited liability

Since a limited company is separate from yourself, you benefit from “limited liability”, meaning only the assets and money you put into the company are exposed. Should the company fail to pay its financial obligations, your personal assets are safe from getting taken by banks or lenders.


Limited companies can become more tax-efficient than sole trader businesses since companies pay Corporation Tax rather than Income tax on their profits (money they make after paying off expenses). 

Since Corporation Tax has a kinder tax rate (19%) than Income Tax (20-45%), registering as a limited company could be more profitable.

Professional status

Once you’ve registered a company name, nobody else can use it. Sole traders don’t get the same protection. Being the only business with your name adds a layer of professionalism to it. 

In general, limited companies look more professional to customers or clients, partly because they often come across as bigger than they are. A limited company may even get loans more easily because banks view them as a more secure business. 

Company pension

Owners of limited companies can also invest money they make before tax into a company pension scheme. This means you can save money by not taking it out and investing it in a personal pension scheme on which you would pay both business and personal tax.

What are the drawbacks?

Below are some drawbacks of limited companies to consider:

Complicated accounts

Bookkeeping for limited companies can be complicated compared to a sole trader structure. You’ll have more records to keep track of, meaning you need to record information more often, usually monthly. We’ll explain more about this below.

These added responsibilities mean limited companies can be expensive and time-consuming, so you may consider finding an app that makes it simple, and potentially hiring an accountant to help. 

Public records

Unlike sole traders, your business information is public, meaning anyone can find it via Companies House. This information includes details on directors and your company’s earnings. If you don’t like this sort of transparency, a limited company may not be for you.

What records do I need to keep for a limited company?

Limited companies must keep records about the company itself, including:

  • Directors, shareholders and company managers
  • Results of any shareholder votes and decisions
  • Promises to repay loans at a specific future date and to whom they must be paid back
  • Promises your company makes for payments if something goes wrong and it’s the company’s fault (indemnities)
  • Transactions when someone buys shares in the company
  • Loans or mortgages you take out against the company’s assets (valuable items you own)

Additionally, you must keep financial and accounting records, including:

  • All money your company receives and spends
  • Details of assets your company owns
  • Debts the business owes or is owed
  • All goods bought and sold
  • Who you bought and sold your goods or services to and from (unless you run a retail business)

Finally, you must keep any other records of financial information, including:

  • All money your company spent, including receipts, petty cash logs, orders and delivery notes
  • All money the company received, such as invoices, contracts, sales logs and till rolls
  • Any other relevant documents like bank statements and correspondence (communication with customers, shareholders, suppliers etc., via letters or emails)

HMRC may check your records to make sure you’re paying the right amount of tax. If you’re confused about how much tax you owe or what records to keep, you can hire an accountant to help. 

How to keep your finances in good shape from day one 

Once you’ve set up your limited company, the Countingup business current account will make it simple for you to manage your financial data with its all-in-one app. The app comes with free built-in accounting software that automates the time-consuming aspects of bookkeeping and taxes. You’ll have access to real-time insights into your business finances, profit and loss, tax estimates and the ability to create invoices in seconds.

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward!

Download the Countingup app to apply for your business current account in minutes. All you need is proof of ID and a selfie. Find out more here.