Companies House - Directors and Secretaries Guide

Limited companies: the basics

1. Do I really need a limited company?

The majority of businesses are not companies. The reasons for having a company are varied, for example, it could involve ownership of property, obtaining investment funds, taxation or contractual relationships. Many businesses function satisfactorily as sole traders or partnerships.

The key point to recognise is that a company is a separate entity.

• This means that it is a legal person in its own right.
• It is separate from those who own or run it, and has 'limited liability'.

2. What does limited liability mean?

Limited liability gives the owners of the company (its shareholders) protection if the company fails.

This means that if a company is put into liquidation, the people who own the company will only be required to pay what they have already paid or agreed to pay towards settling its debts.

3. How do I set up a limited company?

If you decide, maybe after taking professional advice, that a limited company is the best thing for your business, you can buy a ready-made company from a company incorporation agent. Alternatively, you can incorporate a company yourself - for details see our booklets, Company Formations and Company Names.

4. What can I do with an unwanted company?

If you decide that you do not need a company that you have set up, you should consider putting it into voluntary liquidation. If the company cannot afford this, you may be able to apply for it to be struck off the register.

The guidance booklets Liquidation and Insolvency or Liquidation and Insolvency (Scotland) and Strike-off, Dissolution and Restoration or Strike-off, Dissolution and Restoration (Scotland), will give you more information on these subjects.