10 disadvantages of private limited company

A private company is one of the most popular trade structures in the United Kingdom. It offers advantages such as limited responsibility, separate legal identity and tax planning opportunities. However, before registering to become a limited company, it is necessary to consider both advantages and disadvantages.

In this article, we’ll explore the 10 disadvantages of private limited company structures. Many new business owners choose this route without fully understanding the long-term responsibilities and potential downsides. From increased compliance to limited privacy, this guide will help you assess if a Ltd company is right for you.

Whether you’re switching from sole trader status or starting a brand-new venture, knowing the drawbacks upfront can save you time, money, and stress later on.

Let’s start with a quick summary.

Summary Table – Quick Look at the Disadvantages

Here’s a quick overview of the main disadvantages of setting up a private limited company in the UK. This table helps you understand the key issues at a glance before we dive deeper into each one.

Directors are legally responsible for filing annual accounts to Companies House, submitting a confirmation statement, maintaining a PSC (People with Significant Control) register, and ensuring the company’s tax affairs are accurate with HMRC.

Failing to meet these duties can lead to penalties or, worse, legal action. Many directors rely on professional accountants just to stay compliant — an added cost that sole traders often avoid.

Example:
A small agency founder registered as a limited company but forgot to file accounts. A £150 penalty followed, increasing monthly until resolved.

Pro Tip:
Set calendar reminders for each filing deadline. Using a cloud-based accounting system or hiring a specialist accountant will reduce risks.

Limited companies in the UK face more admin and strict legal responsibilities than sole traders, often needing professional help.

2. Public Disclosure of Company Information

Privacy is often overlooked when registering a business. In the UK, forming a private limited company means your information becomes public via Companies House. This includes director names, registered addresses, annual accounts, and shareholder structures. Even micro-entities must file financial summaries, which competitors or the public can access freely.

For business owners who work from home or prefer discretion, this can feel intrusive. While you can use a virtual office address, your identity and role as a director will always be visible.

Example:
A consultant registered from home, only to start receiving cold calls and junk mail because their contact details were publicly accessible online.

Pro Tip:
Use a reputable company formation service that includes a registered office address to protect your home privacy.

Incorporating a limited company reduces privacy by making director and financial information publicly visible in the UK.

3. Higher Formation and Operating Costs

When registering a limited company with relatively cheap home companies, the actual cost happens later. Unlike personal traders, companies have to limit the budget more continuously – from professional accounting services to the payroll and TVA deposits (if any) and additional legal assistance.

You’ll also need to maintain a separate business bank account, cover insurance tailored to company liability, and potentially subscribe to software for payroll, bookkeeping, and tax compliance. These overheads make running a Ltd company costlier than other structures, especially during early growth.

Example:
A graphic designer moved from sole trader to Ltd status expecting tax savings but found the ongoing fees wiped out her perceived benefits.

Pro Tip:
Create a 12-month cash flow forecast before forming a company. This helps you see whether you can absorb the extra operational costs.

Forming and running a limited company involves higher ongoing costs than sole trader businesses due to compliance and legal needs.

4. Corporation Tax on Profits

Private limited companies are subject to Corporation Tax on their profits. As of 2025, companies earning over £50,000 pay between 19% and 25%. While this can be tax-efficient for growing firms, it becomes a burden for businesses with fluctuating or modest income.

And the tax doesn’t end there. When directors withdraw money from the company through dividends, they also pay Dividend Tax, creating a two-step taxation scenario. This double-tax layer can sometimes leave you with less take-home pay than if you remained a sole trader, especially in the early years.

Example:
An e-commerce business made £45,000 in profit but faced a combined tax bill of Corporation Tax + Dividend Tax, leaving less income than expected.

Pro Tip:
Consult an accountant to run tax simulations comparing sole trader vs Ltd status before incorporating.

Private limited companies pay Corporation Tax on profits and additional Dividend Tax, often leading to reduced personal income efficiency.

5. Profit Withdrawal Limitations

Unlike a sole trader, a company director cannot simply transfer business income into their personal account. Instead, withdrawals must follow strict procedures. You’ll need to decide how much to take as salary (subject to PAYE tax) and how much as dividends — which can only be issued from after-tax profits.

This limits your flexibility. If your company hasn’t made enough profit, you’re legally restricted from taking dividends, even if the business has cash in the bank. Many first-time directors don’t realise they can’t just “pay themselves freely.”

Example:
A tech consultant built up £10,000 in cash flow but couldn’t withdraw dividends due to a prior-year loss on paper.

Pro Tip:
Keep personal and company budgets separate. Always check retained earnings before making financial plans based on dividend income.

Directors of Ltd companies can only take profits through salary or dividends, which are subject to rules and taxes.

6. Limited Access to Capital

Unlike public companies, private limited companies cannot raise capital by issuing shares on the stock market. This restricts access to large-scale funding and puts pressure on internal resources or private investors. Many rely on bank loans, government schemes, or personal contributions from directors.

Venture capital or angel investment is possible, but often requires giving up equity and control — something small business owners may not be ready for.

Example:
A software startup couldn’t scale quickly because its limited status made it ineligible for larger investment rounds without changing to a PLC.

Pro Tip:
If you anticipate high growth or investment needs, consider whether a different structure or equity strategy suits you better.

Private limited companies can’t issue public shares and may struggle to access large-scale external capital compared to PLCs.

7. Harder Exit Process

Dissolving or selling a private limited company is a legal process, not a personal decision. You’ll need to file final accounts, notify HMRC, settle outstanding debts, and formally close with Companies House. This can take weeks or months and often requires professional assistance.

Selling a Ltd company can be even more complex due to share transfers, legal valuations, and due diligence. It’s not always easy to exit quickly if your circumstances change.

Example:
A boutique online retailer wanted to close shop after a move abroad. The formal closure process lasted over 3 months and included accounting costs.

Pro Tip:
Before forming a company, think about your long-term plans — not just growth, but how and when you might want to exit.

Exiting a limited company in the UK requires formal dissolution or sale procedures, making it slower and more complex than other structures.

8. Time-Consuming Record-Keeping

As a limited company director, you’re required to maintain detailed financial and statutory records. This includes all invoices, expenses, payroll reports, VAT returns, and shareholder documentation — and you must retain them for at least six years.

While software can ease this task, it still requires time, attention, and often, professional oversight. Directors are personally responsible for ensuring these records are accurate, even if they use an accountant.

Example:
A catering business missed a VAT deadline due to incomplete record-keeping, triggering an HMRC investigation and penalty.

Pro Tip:
Use integrated accounting tools like Xero or QuickBooks from day one to automate record capture and storage.

UK limited companies must keep comprehensive records for years, which takes time and effort to manage properly.

9. Reduced Personal Privacy

When you form a limited company, you sacrifice a degree of personal privacy. Your name, role, and correspondence address are publicly listed online via Companies House. Even micro-entity accounts, although minimal, are accessible to anyone.

This can be problematic for individuals who value discretion, such as consultants, creatives, or those working from home. It can also lead to increased spam, unwanted contact, or even security concerns.

Example:
An independent therapist found their client base hesitant due to visibility of personal addresses linked to their company.

Pro Tip:
Always use a virtual registered office service and opt for service addresses when possible.

Incorporating a company in the UK exposes your personal and business details to public databases, reducing privacy.

10. Shared Ownership and Decision-Making

If your company has other directors or shareholders, decisions must often be made collectively. While this can encourage diverse thinking, it also creates the risk of internal conflicts. Disputes over strategy, money, or future direction can slow progress or damage the business.

Even if you’re the sole director now, bringing on co-owners later means adapting to shared control. Articles of association and shareholder agreements may limit what you can do unilaterally.

Example:
Two friends started a marketing agency, but disagreements over reinvesting profits vs. taking dividends caused the partnership to split.

Pro Tip:
Create a shareholder agreement early, even if you’re the majority owner. This reduces confusion later.

Shared ownership in limited companies may lead to conflicts and slower decisions, reducing personal control.

Should You Still Register as a Private Limited Company?

Not every business needs to operate as a private limited company. While this structure offers several long-term benefits, it’s not always the most practical choice — especially in the early stages of business.

If your income is modest or your operations are simple, the burden of compliance and extra costs might outweigh the benefits. However, there are situations where forming a limited company can provide clear advantages.

When a Limited Company Becomes the Right Choice

Some business models benefit more from a limited company setup than others. For instance, if protecting your personal assets is a priority, the limited liability feature of a Ltd company provides peace of mind.

Businesses forecasting profits above £50,000 per year may also find the corporate tax structure more efficient. If you’re planning to build a team, bring in co-founders, or hire employees, this structure offers more flexibility and formality in managing roles and responsibilities.

Companies looking to work with larger B2B clients, bid for contracts, or raise funding often need the professional image and structure a Ltd company provides. In addition, separating your personal and business finances is easier with a corporate setup, improving both organisation and accountability.

In all these cases, a private limited company delivers the foundation needed for sustainable growth and long-term success.

When Forming a Ltd Company Makes Sense

Certain business scenarios make limited company status more appropriate and valuable:

• You want legal protection through limited liability
• You expect to generate over £50,000 in annual profit
• You plan to employ staff or bring in partners
• You want to enhance your professional credibility for B2B work
• You aim to raise investment or issue shares later
• You prefer to separate personal and business finances clearly

A private limited company offers a structured foundation for scaling and protecting your business, particularly when financial growth and team expansion are part of your goals.

When Sole Trader Status May Be a Better Fit

In other cases, staying as a sole trader offers more flexibility and less complexity:

• You’re just starting out or testing a business idea
• Annual earnings are under £30,000–£40,000
• You prefer quick and easy access to business income
• Minimising costs and admin tasks is a top priority
• There’s no immediate need for investment or outside ownership

For many UK-based freelancers, creatives, and service providers, sole trader status allows for smoother operations without the added pressure of corporate compliance.

Example Comparison

Consider a freelance UX designer earning £28,000 per year. Operating as a sole trader allows them to avoid company accounts, director responsibilities, and corporation tax — making the setup more efficient.

Meanwhile, a growing IT agency with three team members and a £100,000+ turnover chose to incorporate. The limited company structure helped them win bigger contracts, secure liability insurance, and manage team payroll more effectively.

Pro Tip:

If you’re undecided, start small. You can always switch to a limited company later as your business matures and your needs evolve.

When should I register a limited company in the UK?
Choose a private limited company if you’re earning more than £50,000, need legal protection, or plan to grow your team or attract investors. For lower income and flexible operation, sole trader status is simpler and more cost-effective.

Final Thoughts – Weighing the Pros and Cons

The decision to register as a private company is an important step that affects the future of your business. Although the LTD structure provides valuable, prestigious and potential tax advantages, it is also provided with an increase in administrative work, cost and public disclosure.

For many UK business owners, starting as a sole trader provides simplicity and flexibility. However, as your business grows, transitions, or seeks investment, moving to a limited company often makes sense.

Carefully assess your business goals, financial forecasts, and willingness to comply with corporate responsibilities before deciding.

Take the Next Step with Expert Advice

If you’re unsure whether a private limited company is right for your business, professional advice can save you time and money.

At Eternity Accounting, we specialize in helping British entrepreneurs choose the best commercial structure. From sole trader to limited company setup, tax planning, and compliance support, we guide you every step of the way.

Free advice today to discuss your unique situation and get personalized recommendations. Make smart options to determine your business to succeed.

Should I register a limited company or stay a sole trader?
Evaluate your business size, growth plans, and risk tolerance. Consult experts to make an informed choice that aligns with your goals.