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What is a limited company?

A limited company under UK law is one registered at Companies House. It must operate within the Companies Act 2006 and is governed by its own articles of association (companies registered before 1.10.2009 may have both a memorandum of association and articles of association). There are different types of limited company but they all have these qualities.

Once registered a company has corporate personality. It is a legal entity (or legal person) with its own legal rights and obligations, separate and distinct from those of its members and directors. The company's property is its own and is not treated as belonging to the company's shareholders and directors. The company itself can enter into contracts, employ people, sue and be sued and can be liable if it commits criminal offences. This has many practical implications.

Every company has a constitution in the form of articles (or, for older companies, memorandum and articles).

A company must have both directors and members. (Members are shareholders unless the company is limited by guarantee).

The key feature of a limited company is that it offers limited liability to its members. The company (as a separate legal entity) is liable for its debts and the members and directors are not personally liable (unless they have acted wrongly in some way). The members' liabilities are limited to paying to the company the amount they have agreed to pay for their shares. This may be a purely nominal amount, for example if the shareholders have each taken one £1 share.

Most companies limited by shares are trading companies, but there are many different types of registered companies and they are used for many different purposes, some of which have nothing to do with running a business.

 Although it is possible for companies to be created by royal charter ("chartered companies") or by Act of Parliament ("statutory companies"), practically all modern companies are created by registration at Companies House. Nearly all companies are now registered on-line, though it is still possible to do it by submitting paper documents.

Incorporation Services Limited provides an expert service for the registration of all company types.

Related topics

Limited liability

Types of companies

Registering a company

Does a business have to be a limited company?

What does it cost to set up a company?