How to Set Up a Limited Company

Setting up a limited company gives you a more formal business structure, separates your personal finances, and can open up better tax and funding options. It’s a simple process, and the benefits often outweigh the admin.

In this guide, we’ll walk through everything you need to know – from choosing a name to registering with Companies House – and help you decide whether setting up a limited company is right for you.

What does “limited company” mean?

A limited company is a type of legal business structure that separates your finances from those of your company. This means if your company faces financial trouble, your personal assets (like your home or savings) are generally protected.

In the UK, all limited companies are registered with Companies House. Once registered, the company becomes a distinct legal entity – separate from its owners or directors.

A limited company has at least one director who manages day-to-day responsibilities, one or more shareholders who own the company, and company documents including a Memorandum and Articles of Association. The company also has a legal obligation to submit annual accounts and a confirmation statement.

This setup can make your business more appealing to clients or partners and open the door to more funding options.

What is a limited company?

A limited company is a registered legal entity that separates your personal assets from your business liabilities. It can be owned by one or more shareholders and is managed by directors. It must be registered with Companies House and file annual accounts and tax returns.

Does every business have to be a limited company?

No, not at all. If you're just getting started or running a small operation, you might choose to operate as a sole trader or set up a partnership. These structures are often easier to manage in the early stages of development.

There are good reasons to stay as a sole trader, especially if:

• You’re not earning enough to justify the extra admin.
• You don’t need the legal separation between you and your business.
• You’re testing out a new idea before scaling it up.

While there are different ways to run a business – such as operating as a sole trader or through a partnership – most lenders (including us) only work with limited companies.

That’s because limited companies are legally separate entities, with clearer financial records and more robust accountability.

Difference between a sole trader and a limited company

Here’s a quick breakdown of how the two compare:

Tax: Sole traders pay income tax on profits. Limited companies pay Corporation Tax, and directors pay personal tax on salaries/dividends.

Liability: Sole traders are personally responsible for business debts. A limited company offers limited liability protection.

Admin: Running a company involves more paperwork and reporting, but it can offer better tax planning options.

Perception: Clients may view limited companies as more established or trustworthy.

Some people switch when their turnover grows, they want to hire staff, or they’re applying for finance. If you’re considering funding options, review the timing of changing your business structure to better understand its implications.

Steps for setting up a limited company

Setting up a limited company is quite straightforward and can often be completed within a few days. The key bit is understanding each step and ensuring you have all the necessary information and documents ready before you begin.

By following these essential steps, you can get your company up and running legally and efficiently:

Choose a company name

Pick a unique name that reflects your brand. It must:

• Not be too similar to an existing name.
• Include “Limited” or “Ltd”.
• Not contain offensive or sensitive words.

You can use Companies House’s company name availability checker to see whether your planned company name is available. 

Appoint company directors and a company secretary (if applicable)

You need at least one director (aged 16 or over). A company secretary isn’t required, but you can appoint one if you want help managing compliance.

Directors are legally responsible for running the company properly – including filing accounts and paying taxes.

Decide on your shareholders and share structure

You must have at least one shareholder, who can also be the director. You’ll need to decide:

• How many shares to issue
• Who owns what percentage
• Whether shares carry voting rights

The above steps will affect how your company is controlled and how profits are divided.

Prepare your company documents

You'll need to prepare two key legal documents that form the foundation of your company. These include:

• Memorandum of Association: a legal statement signed by all initial shareholders agreeing to form the company.
• Articles of Association: rules for how the company is run.

You can use standard templates or create custom versions if you have specific needs.

Register with Companies House

The UK’s process for registering your limited company is simple, quick and cheap. You can register online via the Companies House website. The process takes around 24 hours and costs £12. You’ll need:

• Your company name.
• Registered office address.
• Details of directors and shareholders.
• Company documents.

Once registered, you’ll get a Certificate of Incorporation (basically, your company’s official birth certificate).

Register for Corporation Tax

You must register with HMRC within 3 months of starting to trade. You’ll need:

• Your company’s Unique Taxpayer Reference (UTR).
• Details about your business activities.
• The date you started trading.

You can register online through your HMRC business tax account.

How to register a business in the UK?

To register a limited company, you must apply through Companies House. For other business types like sole traders, you register with HMRC. You’ll need to choose a name, provide key details and submit company documents.

Do I need employees to make my business a limited company?

No. You can set up a limited company as a solo director and shareholder, and many people do. You don’t need employees to benefit from a limited company structure.

However, if you pay yourself a salary through the company, you may still need to register for PAYE (Pay As You Earn). This is required even if you’re the only employee.

iwoca works with many sole directors and can help when you're ready to grow your team or take on your first employee.

When to set up a limited company

There’s no single perfect moment to do it. But there are definitely some common triggers:

• Your turnover is increasing (e.g. above £50,000).
• You’re working with bigger clients who prefer to deal with limited companies.
• You want limited liability protection.
• You plan to hire staff or seek funding.

Some people make the switch early to appear more professional or to access business loans. Others wait until their tax situation changes. There is no legal mandate that requires a change of status. 

Fees for setting up a limited company

The basic cost for setting up a limited company is £12 (and registering can be done online with Companies House). So the costs are very manageable.

That said, there may be some optional additional costs depending on your set-up:

• Accountant setup and support (typically £100–£300).
• Optional registered office address services.
• Software or bookkeeping tools.

You can set it up yourself, or pay a professional to handle the paperwork. For many, the small upfront cost is worth it for the long-term benefits.

Do I need an accountant to set up a limited company?

No, but it can certainly help. You can register the company yourself, but an accountant will ensure everything is set up correctly – especially around tax planning and company structure.

Flexible finance for limited companies

We support limited companies with fast, flexible funding. Whether you’re just starting or expanding, our Flexi-Loan is designed to work around your cash flow and growth plans.

You can borrow up to £1,000,000 with no early repayment fees. Apply in minutes, get a decision quickly and only pay interest for the time you use the funds. Our loans work whether you’re hiring, buying stock or managing a tax bill.

Ready to take the next step? Learn more about how iwoca’s flexi-loan can support your limited company. Get started with an application today.

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