What is a private limited company?

Private limited companies are one of the most popular business structures in the UK – and it’s easy to see why. They offer a great balance of flexibility and protection, making them a solid choice for many business owners-to-be. If you're familiar with the Limited Liability Company (LLC) in the US, they follow a similar concept – and our guide will help you get to grips with the UK specifics, covering:

• Private limited company meaning
• How a private limited company works
• Advantages of a private limited company 
• Disadvantages of a private limited company
• Difference between a private limited company and public limited company
• How to register a private limited company
• Private limited company example
• How Dojo can help
• FAQs

Private limited company definition 

So, what is a private limited company? A private limited company – often shortened to Ltd – is a type of business structure where the company is legally separate from the people who own and run it. That means shareholders aren’t personally liable for the company’s debts beyond what they’ve invested. 

Shares in a private limited company aren’t traded on the stock market, and ownership typically stays between a small group of people, such as founders, family members, or close business partners.

How a private limited company works

Structure

A private limited company is made up of shareholders (the owners) and directors (the managers). In smaller businesses, it’s common for one person to take on both titles. At a minimum, a private limited company must have one director and one shareholder.

Responsibilities

Shareholders own the company through their shares and have voting rights on key decisions. Directors are responsible for running the company day-to-day and setting the overall strategy. They’re also legally required to act in the company’s best interests and follow all relevant laws and regulations.

Legal and tax obligations

Private limited companies must meet several legal and financial responsibilities, including:

• Registering with Companies House
• filing annual accounts and a confirmation statement
• keeping accurate statutory records
• paying Corporation Tax on profits
• registering for VAT if turnover exceeds the threshold (currently £85,000)
• following employment law when hiring staff.

Getting paid: Salary vs dividends

Directors can take income through a salary, dividends, or a mix of both. Salaries are subject to income tax and National Insurance, while dividends are taxed at a lower rate. The best approach depends on personal circumstances, and an accountant can help personalise your pay structure to get the most out of your earnings while staying compliant with tax rules.

This is especially important when planning your cash runway – how long your business can operate before needing additional funding or revenue growth.

PAYE, pensions, and borrowing from the company

If the company has employees, including directors who receive a salary, it must use Pay As You Earn (PAYE) to handle tax and National Insurance. It may also need to set up a workplace pension scheme.

Directors can borrow money from the company, but this has to be properly recorded and could trigger tax charges if not handled correctly.

Private limited company advantages and disadvantages

Advantages of a private limited company 

• Limited liability: Shareholders aren’t personally on the hook if the company runs into financial trouble. Their liability is limited to what they’ve invested, meaning personal assets are generally protected.
• Brand protection: Once registered with Companies House, your company name is legally protected, so no one else can use it.
• Tax efficiency and cash flow management: There can be tax advantages to running a limited company. Directors can take a mix of salary and dividends, which can be more tax-efficient than income tax alone. Plus, Corporation Tax is typically lower than higher rates of personal tax.
• Business continuity: A private limited company exists as its own legal entity. That means it continues to operate even if directors or shareholders leave or change.

Disadvantages of a private limited company

• Setup and admin costs: There are costs involved in setting up the company, and you’ll also need to budget for ongoing accounting and legal fees to stay compliant.
• Regulatory responsibilities: Compared to sole traders or partnerships, limited companies face stricter legal and financial reporting obligations.
• Shared profits: Profits belong to the company and must be distributed among shareholders according to their shareholdings – so you may not have complete control over earnings.
• Director pay can be complex: Working out the most tax-efficient way to pay yourself as a director isn’t always straightforward. In most cases, it’s worth getting professional advice.

Difference between a private limited company and a public limited company

The key difference lies in share ownership and access to capital. 

A private limited company is owned by a small group of shareholders and can’t offer its shares to the public. A public limited company (PLC), however, can sell shares on the stock market to raise funds from the public. PLCs also face stricter regulatory requirements and must have a minimum share capital of £50,000.

How to register a private limited company

To set up a private limited company, follow the instructions below.

1. Choose a company name: Pick a unique name that follows the rules set by Companies House. It’s worth checking trademark databases too, to avoid running into legal trouble down the line.

2. Appoint directors and a company secretary: You’ll need at least one director to run the company. A company secretary isn’t required, but some businesses appoint one to help manage paperwork and admin.

3. Decide on shareholders and shares: Set out who will own the company and how many shares each person will hold. The way shares are distributed affects who has control and how decisions get made.

4. Prepare your legal documents: You’ll need two key documents to set up a limited company:

• The ‘memorandum of association’ confirms everyone’s intention to form the company.
• The ‘articles of association’ outline the rules for how the company will be run.

5. Register with Companies House: You can register online or by post – once approved, you’ll receive a certificate of incorporation. You’ll need to provide the following:

• Company name
• Details of directors and shareholders
• Capital and distribution
• UK-registered office address

Setup costs and what's required

It’ll cost £12 for online registration or £40 if you register by post, and you’ll need:

• A unique company name
• at least one director
• at least one shareholder
• a registered office address in the UK
• a completed memorandum and articles of association.

Ongoing responsibilities

Once you’re up and running, there are a few things you’ll need to stay on top of:

• File annual accounts
• Submit a confirmation statement each year
• Report changes to Companies House (like new directors or a change of address)
• Maintain statutory company records
• File Corporation Tax returns with HMRC

Private limited company example

Pixel & Hue Ltd is a small graphic design studio based in Manchester. It’s run by Sarah, who is both the sole director and shareholder. She registered the company with Companies House, pays herself through a mix of salary and dividends, and files annual accounts each year. The company name is legally protected, and Sarah enjoys the limited liability that comes with the Ltd structure.

Real-world examples of private limited companies include:

• Dyson Ltd: Technology and engineering
• Innocent Drinks Ltd: Smoothie and juice brand
• John Lewis Partnership Ltd: Employee-owned retail business
• Local businesses: Many small shops, consultancies, and tradespeople register as Ltd companies for the protection and credibility it offers