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Limited Company

A limited company is one of the most widely used business structures in the United Kingdom. It is a separate legal entity — entirely distinct from its owners and directors — that can own property, enter contracts, employ people, and be sued in its own name. This separation between the company and the people who own or run it is what gives the structure its most significant advantage: limited liability. It also creates a set of estate planning considerations that are often underestimated.

What a limited company is

A limited company is a body corporate — a legal entity created by registration at Companies House, with its own legal personality separate from its shareholders and directors. The company owns its own assets, owes its own debts, and enters its own contracts. The shareholders own the company — through their shares — but they do not own the company's assets directly. The directors manage the company on behalf of the shareholders, but they are not the company.

This separation — between the company as a legal entity and the people who own and run it — is the defining characteristic of the limited company structure. It is what makes the company capable of surviving the death or departure of any individual involved in it. The company continues regardless of what happens to any particular shareholder or director. The shares change hands. The directorship changes. The company remains.

How it is created

A limited company is incorporated by registration at Companies House. The registration requires a company name, a registered address, at least one director, at least one shareholder, and the submission of a memorandum and articles of association — the company's constitutional documents. The memorandum records the intention to form the company. The articles govern how the company is run — the rights of shareholders, the powers of directors, how decisions are made, and how shares can be transferred.

Model articles of association are provided by Companies House and used by default where no bespoke articles are submitted. For a simple single-director company, the model articles may be sufficient. For a company with multiple shareholders, complex ownership structures, or specific requirements around what happens to shares on a shareholder's death, bespoke articles — or a separate shareholders' agreement — are almost always advisable.

Once incorporated, the company must file annual accounts and a confirmation statement at Companies House. Its accounts and certain details about its directors and shareholders are publicly available on the Companies House register.

Shareholders and directors

The shareholders own the company — through their shares — and are entitled to dividends declared by the company and to a share of the assets if the company is wound up. Shareholders exercise their control through voting at general meetings. The extent of each shareholder's control depends on the number and class of shares they hold.

The directors manage the company on a day-to-day basis. They owe duties to the company — not to the shareholders personally — under the Companies Act 2006. These duties include acting within their powers, promoting the success of the company, exercising independent judgment, and avoiding conflicts of interest. In a small owner-managed business, the shareholder and the director are often the same person — but they hold two legally distinct roles with different rights and different obligations.

Liability

The liability of shareholders in a limited company is limited to the amount unpaid on their shares — typically a nominal amount of £1 per share. If the company cannot pay its debts, the shareholders' personal assets are not at risk beyond this amount. Directors are not personally liable for the company's debts simply by virtue of being directors — unless they have given personal guarantees, traded fraudulently, or engaged in wrongful trading.

This is the fundamental advantage of the limited company over a sole trader or general partnership. The company's debts are the company's debts. They do not automatically become the personal debts of the people behind it. Personal assets are protected — subject to the exceptions above.

Tax

A limited company pays corporation tax on its profits — currently at a rate of 25% for profits above £250,000, with a small profits rate of 19% for profits below £50,000 and marginal relief between the two thresholds. This is a separate tax from the income tax paid by the shareholders and directors personally. Income is extracted from the company by the shareholders and directors through a combination of salary, dividends, and pension contributions — each with its own tax treatment.

The tax efficiency of a limited company depends on how profits are extracted and how the company's income and expenses are structured. For many owner-managed businesses, the combination of corporation tax on profits and income tax on extraction is more tax-efficient than the income tax and National Insurance paid by a sole trader or partner — but this depends on individual circumstances and the level of profit involved.

The articles of association and shareholders' agreement

The articles of association are the company's constitutional document — they govern how the company operates, how shares can be transferred, and what happens in various circumstances including the death of a shareholder. The model articles provided by Companies House contain basic provisions but do not address many of the situations that arise in a closely-held family or owner-managed business.

A shareholders' agreement — a private document between the shareholders — supplements the articles and deals with matters the shareholders want to keep confidential, or that require more flexibility than the articles allow. Unlike the articles, a shareholders' agreement is not filed at Companies House and is not publicly available. It can address what happens to shares on a shareholder's death, how the company is valued, drag-along and tag-along rights, and the obligations of shareholders to each other.

For any company with more than one shareholder, a shareholders' agreement is one of the most important documents the company can have. For a single-director, single-shareholder company — a common structure for owner-managed businesses — the articles and a carefully drafted Will together can address the key estate planning questions.

On death — what happens to the company

A limited company does not cease to exist on the death of a shareholder or director. The company continues as a legal entity. What changes is the ownership of the shares and the composition of the board.

The deceased shareholder's shares pass to their estate and are dealt with by the executor under the terms of the Will — or the rules of intestacy if there is no Will. The executor has the power to deal with the shares as assets of the estate — to hold them, sell them, or transfer them to the beneficiaries — depending on what the Will says and what the articles of association permit. Whether the beneficiaries become shareholders in their own right, or whether the shares must first be offered to the existing shareholders, depends on the articles and any shareholders' agreement.

The deceased director's appointment terminates on death. The remaining directors continue to manage the company. If the deceased was the sole director, the shareholders must appoint a replacement — and if the deceased was also the sole shareholder, the executor must deal with both the shares and the directorship, which can create a practical difficulty if the executor has no authority to act as director and no one else is available to do so.

The sole director, sole shareholder scenario. Where one person is both the sole director and sole shareholder of a company, their death creates a specific practical problem. The shares pass to the estate — but the executor may have no authority to act as director. The company has no director. Decisions cannot be made, contracts cannot be signed, and the business may be unable to operate until a new director is appointed. The articles of association should address this scenario explicitly — and the Will should give the executor clear authority to manage the company's affairs during the administration.

On death — estate planning considerations

Shares in an unquoted trading company — a private limited company carrying on a qualifying trade — may qualify for Business Relief at 100%, reducing their IHT value to nil if the conditions are met. The shares must have been held for at least two years before death. The company must be a qualifying trading business — not primarily an investment holding company. The April 2026 changes introduced a £2,500,000 combined cap on 100% Business Relief — planning around this is covered in the Business Relief Trust Will helpsheet.

A Will for a shareholder in a limited company should specifically address the shares — whether they should be sold, transferred to a beneficiary, or held in trust. If the intention is for the business to continue, the Will should give the executor sufficient authority to manage the shares and participate in the company's affairs during the administration. A Business Relief Trust Will — directing the shares into a discretionary trust on death — may be appropriate where the value is significant and the intention is to preserve the business for the next generation.

A shareholders' agreement or cross-option agreement — supported by life insurance written in trust — is the standard mechanism for funding a buy-out of a deceased shareholder's shares. Each shareholder takes out a policy on their own life, written in trust for the other shareholders. On death, the policy provides the funds for the surviving shareholders to purchase the deceased's shares from the estate at an agreed valuation. This keeps control of the business with the people running it and gives the estate a fair value for the shares.

On incapacity — what happens to the company

A limited company does not cease to exist if a shareholder or director loses capacity. The company continues. But the incapacitated director's ability to manage the company is immediately affected — they cannot sign documents, cannot attend board meetings, and cannot fulfil their obligations as a director. The incapacitated shareholder's ability to vote at general meetings and receive dividends is similarly affected.

A Property & Financial Affairs LPA — naming a trusted attorney with authority to deal with company affairs — gives someone the legal standing to act on the incapacitated director or shareholder's behalf. The attorney can vote at general meetings, receive dividends, deal with administrative requirements, and in appropriate circumstances act as director if the articles permit. Without an LPA, the only route is a Court of Protection Deputyship — slow, expensive, and disruptive to the business in the interim.

The articles of association and any shareholders' agreement should address incapacity explicitly — whether an incapacitated director's appointment can be terminated, who has authority to act on their behalf in the interim, and what protections are in place for both the company and the incapacitated individual.

"A man runs a successful business through a limited company — the sole director, the majority shareholder. He has a stroke. There is no LPA. His wife cannot sign contracts on his behalf. She cannot access the company bank account. She cannot appoint a replacement director because she does not hold enough shares to pass the resolution. The business has contracts to fulfil and employees to pay. A Deputyship application is made. It takes six months. The business does not survive the wait."

Key planning points for company shareholders and directors

• Articles of association and a shareholders' agreement that address what happens to shares on death or incapacity — including whether shares must be offered to existing shareholders first, how the company is valued, and who has authority to act in the interim.

• A Will that specifically addresses the shares — what should happen to them, who deals with them, and whether the executor has authority to manage company affairs during the administration. A Business Relief Trust Will may be appropriate where the value is significant.

• A Property & Financial Affairs LPA for each director and significant shareholder — naming an attorney with the knowledge and authority to manage company affairs if capacity is lost.

• A cross-option agreement supported by life insurance written in trust — to fund a buy-out of a deceased shareholder's shares without disrupting the business or forcing a valuation dispute.

• A review of whether Business Relief applies to the shares — and whether the April 2026 changes affect the planning. Investment companies do not qualify — the trading nature of the business matters.

• For sole director, sole shareholder companies in particular — explicit provisions in both the articles and the Will addressing what happens if the sole director and shareholder dies or loses capacity, and who has authority to keep the company running in the interim.