The main forms of legal entities in the United Kingdom are Private Limited Company (LTD) and Companies Limited by Guarantee. There are also 3 other alternatives for legal forms of business (Sole trader, Partnership and Limited Liability Partnership), but each has different tax and liability implications for owners and shareholders.
Download our 2023 guide on company formation in the United Kingdom , containing additional information about the local forms of business, or read more below:
Legal forms of business, minimum capital, contribution
The following legal forms of legal entities exist in the United Kingdom:
Private Limited Company (LTD)
The initial share capital is usually less that GBP 100, and there is no minimum capital requirement (other than the requirement that at least one share be issued upon incorporation). Small and medium-sized private companies have the option of submitting modified (i.e., simplified) accounts at Companies House, rather than full accounts.
Companies Limited by Guarantee
Guarantors can be company members who play an important role in the company by controlling the organization and making critical decisions. They typically do not take profit from the company; instead, the funds are retained by the company or are put to other purposes.
Guarantors make a promise of an agreed amount of money to the company if it fails to pay its debts. This is referred to as a ‘guaranteed amount’. The full amount of their guarantee must be paid to the company.
This payment covers guarantors for situations such as the company being closed down. The guaranteed amount is not linked to how much the company is worth – you choose how much they pay.
Other legal forms of business in the United Kingdom
In the United Kingdom, there are 3 basic business structure types, and each has different tax and liability implications for owners and shareholders:
Minimum documentation and incorporation time
The most common legal form in use for running a business is the Limited Company. Companies are ‘incorporated’ to create an organisation with a separate legal personality. This indicates that the organisation is able to run business and enter into contracts under its own name. When registering under the Companies Act 2006, a company must have two constitutional documents:
A Limited Company is owned by its members, those who made investments in the business, and as the name implies they enjoy limited liability. That means, that the company’s finances are separate from the personal finances of their owners and typically, creditors of the business may only pursue the company’s assets to settle a debt. The owners’ private property is not at risk.
There are two mechanisms for company membership:
Shareholders and company´s bodies
Due to the nature of the UK Limited Company, it should have one director and one shareholder (who can be the same individual) who are both at least 16 years old and liable for all company obligations. Additionally, the company needs to have a UK registered office address. These are the basic requirements that must be met in order for a foreign resident to register a UK company.
Special requirements for a non-UK legal entity
Since an offshore company is one that is not incorporated in the United Kingdom, it is not permitted to own a UK company even though it is permitted to operate within the UK and create subsidiaries in the UK. You can separately register a company as a non-British national if you own an offshore company.
General overview of corporate taxes
Corporate income tax
2020 to 2021
2021 to 2022
2022 to 2023
2023 to 2024
Main rate 19% 19% 19% 25% Small profits rate n/a n/a n/a 19% Lower threshold
n/a n/a n/a GBP 50,000 Upper threshold
n/a n/a n/a GBP 250,000
Corporate Income Tax is paid on profits from doing such business as:
- a limited company
- any foreign company with a UK branch or office
- a club, co-operative or other unincorporated association, e.g. a community group or sports club
In the United Kingdom, investment incentives in the form of tax reliefs are provided to stimulate investment by increasing income from it or reducing its costs. Moreover, attractive venture capital schemes are offered to assist small and medium enterprises with their growth plans. The Enterprise Investment Scheme and the Venture Capital Trusts offer tax relief for individuals interested in investing in the UK small businesses.
To promote fast-growing, innovative services and products, companies investing in research and development in the United Kingdom may benefit from the R&D Expenditure Tax Credit.
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