Most private businesses in the UK are Limited by shares. Over 93%, in fact! But what does ‘Limited by shares’ actually mean? And why do most businesses choose to structure their companies this way? 

In this article, we’ll unpack what the ‘Limited by shares’ company structure involves, how it affects your financial and legal responsibilities, and what you need to know if you're thinking of registering this type of company.

What does ‘Limited by shares’ mean?

A company that’s Limited by shares is a type of Limited company. It means the business is legally separate from the people who run it (usually the directors), and that its finances are distinct and separate from your personal finances.

The ‘Limited by shares’ part refers to liability. In this structure, each shareholder’s financial responsibility is limited to the value of their shares in the business. If the company runs into financial trouble, shareholders won’t be personally liable for debts beyond what they’ve invested - unless they’ve given personal guarantees.

This limited liability makes it a popular structure for entrepreneurs, startups and small businesses, since it offers protection without too much complexity.

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Key features of a ‘Limited by shares’ company 

If you’re thinking about registering a company limited by shares, here are the main features to be aware of:

1. Separate legal identity

A company that’s Limited by shares is its own legal entity. That means it can own assets, enter into contracts, employ people and be held liable for debts and legal issues - all separate from its directors or shareholders.

2. Shareholders and share capital

A company Limited by shares must have at least one shareholder and issue at least one share. Each share represents a portion of ownership in the company. You can be both the sole shareholder and director of your company.

3. Limited liability

As we touched on earlier, shareholders’ liability is limited to the value of their unpaid shares. So if you own 100 shares worth £1 each and you’ve paid for all of them, your liability is zero.

4. Profit distribution

Profits can be distributed to shareholders as dividends. This makes the structure a good option if you plan to grow the business and eventually reward yourself or other investors through dividends. Not all shareholders automatically receive dividends, though—here’s a breakdown of how it works in our article 'Do all shareholders receive dividends?'.

5. Companies House registration

You’ll need to register your company with Companies House. This includes providing a company name, registered office address, details of directors and shareholders, and your articles of association (the rules for running your company). 

Is a company that’s Limited by shares right for you?

In most scenarios, and for most businesses, a ‘Limited by shares’ company structure makes the most sense. Especially if:

• You want to protect your personal assets from business risk.
• You plan to bring in investors or co-founders who will own shares.
• You want to keep control over how profits are distributed.
• You’re aiming for a professional, credible structure that’s separate from you as an individual.

It’s also worth noting that this structure is different from being a Sole Trader, where you and your business are legally the same. While Sole Traders enjoy simpler admin, they don’t have the same protection from liability. If you’re curious about the legal requirements of being a Sole Trader, we’d recommend checking out our helpful guide. 

What’s the difference between ‘Limited by shares’ and ‘Limited by guarantee’?

This is a common point of confusion. A Limited by shares company is usually run for profit, and shareholders receive returns on their investments. A company Limited by guarantee, on the other hand, is usually set up for non-profit purposes, like charities or community organisations. Instead of shareholders, it has guarantors who agree to pay a nominal amount (often £1) if the company goes bust.

So if you're running a business to make a profit, Limited by shares is almost always the right choice.

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The pros and cons at a glance

If you're torn between registering as a Limited company or staying as a Sole Trader, here’s a closer look at the main advantages and disadvantages of being limited by shares:

Pros:

• Limited liability protection: This is one of the biggest benefits. If your business runs into debt or legal trouble, your personal assets (like your home or savings) are usually protected. As a sole trader, you're personally liable for any business debts.
• Professional and credible image: Having “Ltd” after your business name can inspire more confidence from clients, suppliers and investors. It signals permanence and structure in a way that a Sole Trader setup might not.
• It’s easier to raise investment: Because a Limited company can issue shares, it’s more attractive to outside investors. You can bring in new shareholders or co-founders without needing to restructure the business.
• Tax-efficient profit distribution: As a company director, you can pay yourself a mix of salary and dividends - which can be more tax-efficient than taking all your income as self-employed earnings.

Cons:

• More admin and reporting compared to being a Sole Trader: You’ll need to file annual accounts and a confirmation statement with Companies House, keep proper financial records and comply with the rules in your articles of association. This is more paperwork than sole traders typically deal with.
• More regulatory responsibilities: You’ll need to understand directors’ duties, shareholder rights, dividend rules and corporation tax filing obligations. It’s manageable with help from an expert accountant or tax advisor, but more complex than being a sole trader.
• Less privacy: Certain company information - like your registered address, shareholder details and financial accounts - is published on the public Companies House register. 

The sky’s the limit when you’re ‘Limited by shares’ 

Running a company that’s limited by shares is the smartest choice for most UK entrepreneurs. It offers protection, flexibility and the potential to grow in a sustainable, professional way. 

Still, it’s not without its responsibilities, so it’s worth making sure you understand what’s involved before you commit. If you’re unsure whether this is the right setup for your business, or you want help registering and managing your limited company and its tax responsibilities, Crunch’s expert accountants are here to support you every step of the way. Get in touch with one of our friendly experts today.