You can set up a private limited company to run your business. You must appoint people to run the company (called ‘directors’) and register (or ‘incorporate’) it with Companies House.
Once the company is registered you’ll get a ‘Certificate of Incorporation’. This confirms the company legally exists and shows the company number and date of formation.
Sole traders are personally responsible for their business debts, but the liability in a private company is usually limited to the shareholders. The liability depends on the type of company being created.
Types of private limited company
A private company limited by shares is owned by its members (called shareholders). The liability of each member is limited to the original value of the shares issued to them, but not paid for.
A shareholder has 500 shares originally valued at £1 each. They have previously paid for 100 shares, ie £100. At the time the company fails, they’re liable up to the original value of shares they haven’t paid for, ie £400.
A private company limited by guarantee means the members of the company financially back it up to an amount agreed previously, if things go wrong. Its members aren’t called shareholders.