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Limited Company

Also known as: Ltd, Private Limited Company

Definition

A limited company is a business structure that exists as a separate legal entity from its owners, meaning the owners' personal liability for business debts is limited to their investment amount.

Understanding limited companies is crucial for estate planning because your company shares form part of your estate and must be addressed in your will—quite differently from how sole traders handle business assets.

What Does Limited Company Mean?

Under the Companies Act 2006, a limited company is a business where the company itself—not the owners personally—is legally responsible for its debts and obligations. The company is registered with Companies House, has its own legal identity, and can own assets, enter contracts, and operate independently of its shareholders. This structure requires at least one director (who manages operations) and one shareholder (who owns the company), though one person can fulfil both roles. The company name must end with "Limited" or "Ltd" to indicate this protected status.

The "limited liability" protection means if the business fails, creditors can only pursue the company's assets—not the owners' personal savings, homes, or other property. For example, Sarah runs "Sarah Smith Design Ltd," owning 100% of the shares. The company owns computers and equipment worth £30,000 and has £15,000 in its bank account. If the company fails owing £50,000, creditors can only claim the £45,000 of company assets, not Sarah's personal home or savings. Her maximum loss is her original investment in the shares.

Most UK limited companies are "limited by shares," meaning owners invest money in exchange for shares representing their ownership percentage. When you own a limited company, you own shares in that company—you don't personally own the company's assets. The company owns the business premises, equipment, and cash. This legal separation is fundamental to estate planning because when you die, your shares (not the company's assets) form part of your estate and pass according to your will.

For estate planning purposes, limited company shares can qualify for Business Relief from Inheritance Tax if the company is a trading company (providing goods or services) and you've owned the shares for at least two years. Trading companies currently qualify for 100% relief, potentially eliminating Inheritance Tax entirely. However, from 6 April 2026, Business Relief will be capped at £1 million (receiving 100% relief), with only 50% relief available on value above that threshold. Investment companies—such as those holding buy-to-let properties purely for rental income—don't qualify for Business Relief at all, leaving shares exposed to 40% Inheritance Tax above the £325,000 nil-rate band.

Common Questions

"What happens to my limited company shares when I die?" Your limited company shares form part of your estate and pass according to your will (or intestacy rules if you have no will). The shares may qualify for 100% Business Relief from Inheritance Tax if the company is a trading company and you owned the shares for at least two years before death. You should specify in your will who receives your shares and consider any existing shareholders' agreement.

"Can I pass my limited company to my children without paying Inheritance Tax?" Yes, if your limited company qualifies as a trading company (not an investment company), shares can qualify for 100% Business Relief from Inheritance Tax. However, from April 2026, BPR will be limited to the first £1 million of value (100% relief), with only 50% relief on value above £1 million. You must have owned the shares for at least two years before death for BPR to apply.

"Do I need to mention my limited company in my will?" Yes, you should specify who inherits your company shares in your will. Without clear instructions, your shares pass under intestacy rules, which may not align with business succession plans. If you have a shareholders' agreement, ensure your will coordinates with it. Consider whether shares should go to family members or business partners, and address any restrictions on share transfers.

Common Misconceptions

Myth: "I own a limited company, so all the company's assets are mine to give away in my will."

Reality: You don't own the company's assets—you own shares in the company, and the company owns the assets. When you die, your shares (not the company's assets) form part of your estate. The company continues to own its assets; beneficiaries inherit your shares and become the new shareholders.

Myth: "Limited company shares automatically pass to my business partner when I die, so I don't need to put them in my will."

Reality: Limited company shares pass according to your will (or intestacy rules if you have no will), not automatically to your business partner. However, if you have a shareholders' agreement, it may give existing shareholders the right of first refusal when shares are inherited. Your will should coordinate with any shareholders' agreement to avoid disputes.

  • Sole Trader: A contrasting business structure where you have unlimited personal liability and business assets are your personal assets, unlike limited companies which offer legal separation.
  • Company Shares: What you actually own when you own a limited company—shares represent your ownership stake and form part of your estate.
  • Articles of Association: The constitutional document governing how your limited company operates, including rules about who can own shares and transfer restrictions.
  • Director: The person appointed to manage the limited company's daily operations, a role distinct from being a shareholder though one person can be both.
  • Shareholders' Agreement: A private agreement between shareholders that may restrict who can inherit shares, requiring coordination with your will to ensure smooth succession.

Need Help with Your Will?

If you own a limited company, creating a will that properly addresses your shares is essential for business continuity and protecting your family's financial security. Understanding what happens to your ownership stake ensures your business legacy passes according to your wishes.

Create your will with confidence using WUHLD's guided platform. For just £99.99, you'll get your complete, legally binding will plus three expert guides. Preview your will free before paying anything—no credit card required.

Legal Disclaimer:

This article provides general information only and does not constitute legal or financial advice. WUHLD is not a law firm and does not provide legal advice. Laws and guidance change and their application depends on your circumstances. For advice about your situation, consult a qualified solicitor or regulated professional. Unless stated otherwise, information relates to England and Wales.