What kind of company is best for you?

Companies in the UK do not all operate in the same way. A company’s classification depends, among other things, on who owns the company and the extent to which those people are responsible for the company’s liabilities.

The distinction between the different types has important ramifications for the legal status of the company, particularly with regards to ownership and what happens if the company goes into liquidation.

Here, we’ll explain some of the most common types of company in the UK and what they mean for your business.

PUBLIC LIMITED COMPANY (PLC)
A public company is a corporation whose ownership is open to the public. Anyone can buy shares in the company’s stocks.

A limited company is a corporation in which an individual’s financial liability for the company is restricted to a fixed sum – this sum is usually the value of their investment.

A PLC is a combination of these two concepts – it is a public company whose shareholders (who could, theoretically, be anyone) are responsible for the company’s financial liabilities to the extent of their investment.

The other key point of note is that before a PLC can start business, it must have allotted shares to the total value of at least £50,000.

PRIVATE COMPANY LIMITED BY SHARES (LTD)
In contrast to a public company, a private company cannot be owned by any members of the public. It will instead be owned by an NGO (non-government organisation) or a relatively small number of shareholders, and the sale of company shares is handled privately.

However, these companies are limited, like PLCs, and this has the same implications for a private company as it does for a public company. Once again, an individual is only responsible for the business’s financial liabilities to the extent that they invested in the company.

Private limited companies are one of the most common types of companies.

COMPANY LIMITED BY GUARANTEE
A company that is limited by guarantee is very different to the two previous types of limited company. In this case, the individuals are not responsible for a fixed sum based on their investment, as this company status is reserved for companies that don’t have shareholders, like smaller, non-profit organisations.

Instead of shareholders, these companies typically have a group of members who act as guarantors and agree to contribute a nominal sum towards the winding up of the company, in the case of such an event occurring.

According to UK law, these companies have to include ‘Limited’ in their names, but exceptions can be made, for example, in the case of companies that are not distributing their profits to its members.

UNLIMITED COMPANY (UNLTD)
The key difference between limited and unlimited companies is that there is no formal restriction on the amount of money that shareholders have to pay if a company goes into formal liquidation.

In the event of a formal liquidation (and only then), the shareholders are responsible for completely settling the company’s outstanding financial liabilities, regardless of the extent of their investment in the company.

LIMITED LIABILITY PARTNERSHIP (LLP)
The first thing to note about LLPs is that they are not legally treated as partnerships in the UK, instead, they are treated as incorporated bodies that are more similar to the other types of company looked at in this post.

For a business to be an LLP, some or all of the partners have to have limited liabilities, which means that they are only responsible for their own misconduct or negligence, rather than being responsible as a collective (which is the more traditional partnership model).

Another key element of an LLP is that, unlike other corporations, the partners are allowed to directly manage the business. In other company types, the shareholders have to vote to elect a board of directors, and the board employs other people to manage the company.

COMMUNITY INTEREST COMPANY
This is a status that was created for companies that are not driven by the objective of maximising profits for their shareholders, but with the intention of using their assets and profits for the good of the communities that they’re in.

These companies are made to be easy to set up, and they run on the basis that any money they make is not distributed to shareholders, but goes to improving the area around them.

Many community interest companies will still put profits back into the company, but that will be done with the intention of improving the community services that they offer.

INDUSTRIAL AND PROVIDENT SOCIETY (IPS)
Industrial and provident societies are worth a mention, as they were a major company type for many years.

Since 2014 they have been replaced everywhere in the UK, except Northern Ireland, by newer types like the community interest companies mentioned above, and by other names, such as cooperatives and community benefit societies.

ROYAL CHARTER (RC)
If a company or organisation has been created by Royal Charter, it means that it has been granted power or a right by the monarch. Once upon a time, all companies had to be approved by Royal Charter, but those days are long gone, and other methods of starting a company have become far more prevalent.

Notable examples of chartered organisations include the BBC, the Bank of England and the Royal Opera House. It’s worth knowing that chartered companies exist, but it’s unlikely that this type of company will have much bearing on your day to day business.

Source: companyaddress.co.uk