Deciding which business structure to operate under is often one of the first major business decisions start-ups make. If you decide to register a limited company (a process known as incorporation) then you might encounter the different types of company structure which are available.
In this article we’ll explain the different types of limited company available, and what to consider about each.
Private company limited by shares
Private limited companies are probably the most common type of structure for brand new companies. The ‘limited’ part of its name refers to the owners’ personal liability for any debts which the company has (which is often seen as one of the advantages of setting one up). This is because the company is a separate legal entity to its owners, so the extent to which they are personally responsible for any debts is ‘limited’ to the amount invested in shares they own personally.
For example
You buy 100 £1 shares and pay £1 each, so you don’t owe anything else. Your ‘exposure’ to any company debt is limited to the £100.
Public limited company (PLC)
Public limited companies (PLCs) are, like all limited companies, legally distinct from their owners. They’re broadly similar to private limited companies, but in this case shares are publicly available to buy and are traded on the stock exchange. They also have even more statutory requirements to meet!
This includes having a minimum of two members, the company name ending in public limited company (or plc), a company secretary, and at least £50,000 in issued share capital.
Private company limited by guarantee (LBG)
Companies limited by guarantee don’t have shareholders, and don’t issue shares. Instead, members of the board act as guarantors and are liable for the amount they guarantee to the company as well as being responsible for the business and any debts.
Private companies which are limited by guarantee tend to be set up by not-for-profit organisations such as charities or clubs.
Unlimited companies
It’s quite rare to form an unlimited company, but not unheard of. Most people decide to form a company so their personal liability is limited, but an unlimited company means unlimited liability, a bit like being a sole trader where you’re personally liable for everything.
Unlike being a sole trader though, operating as an unlimited company means you could have other shareholders with whom to share liability.
The unlimited liability aspect of this type of company can actually be a source of confidence for some potential creditors and lenders. It’s based on the idea that the shareholders of an unlimited company have more of their own interests at stake, and so the company is less likely to become insolvent.
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