Although a business forming a UK company will normally proceed with the formation of a private company limited by shares there are alternative types of company available. The choice of what type of company to form may depend on the type of activity the company will engage in. It is therefore worth reviewing the different types of company in the UK. An agent may help with the choice of the most suitable vehicle for the planned activities.
Private Company Limited by Shares
Most companies trading in the UK choose to incorporate as private companies limited by shares. Doing business through a private limited company has the important advantage that the liability of shareholders is limited to their shareholding, but the company must ensure that an annual report and accounts are filed with Companies House. This ensures that potential creditors or investors have the information available to help them take a decision on dealing with the company. A private company has one or more directors and has no minimum share capital. A small private company may file simplified accounts, rather than full accounts, with Companies House each year.
Public Limited Company
A public limited company (PLC) is suitable for large businesses that offer their shares for sale to the public. It is not suitable for start-up companies as the minimum share capital required is GBP 50,000. These companies must also satisfy very strict requirements under Company Law on issues such as the issue and transfer of shares, the role of the directors and the submission of full financial statements.
Company Limited by Guarantee
A company limited by guarantee is similar to a private company limited by shares but it does not have shares or shareholders. Instead the company has members who guarantee to pay the liabilities incurred by the company up to a certain specific amount. In practice the amount of the guarantee is generally very small. The members may hold meetings to regulate the affairs of the company and there will be directors who form a management committee and have duties similar to those of directors of a private company limited by shares.
Formation of a company limited by guarantee is often a good option for organizations operating in the social and community areas of activity. The limited liability protects the members of the company from becoming personally liable for all the debts incurred by the organization. Incorporation helps the company to own property as a separate legal entity and to take or defend actions in the Courts.
Limited Liability Partnership
The limited liability partnership (LLP) has some features of both a company and a partnership. The LLP must have at least two members. The LLP is a separate legal entity and the partners have limited liability for the debts of the entity. The LLP has to be registered at Companies House and must submit some financial information each year.
The LLP is not subject to statutory rules for running the partnership as the management of the partnership is regulated by the partnership agreement. There are no requirements in respect of meetings, directors or shares. For tax purposes the LLP is treated in the same way as other partnerships so each partner is responsible for declaring and paying tax on the appropriate share of the profits and gains of the partnership. The LLP is often used by professional firms of accountants and other consultants.
Community Interest Companies
The Community Interest Company (CIC) may be formed only for objects related to activities that benefit the community. When applying to form a CIC the founders must submit with the registration documents a Community Interest Statement outlining the objectives of the organization. The assets and any profits arising must be retained by the CIC and used for the community or transferred to another CIC or charity.
Charitable Incorporated Organization
A Charitable Incorporated Organization (CIO) may be set up under the Charities Act 2006 and aims to simplify administrative requirements for a charity. A CIO registers with the Charity Commission and sends in an Annual Report and accounts to the Commission each year. Before the CIO became available a charity wanting to incorporate would need to become a private company limited by guarantee, under the Companies Act, as well as being a charity regulated by the Charity Commission. This need to report to two bodies caused an unnecessary administrative burden. The CIO now provides a simplified way for a charity to be incorporated.
Choosing a Suitable Type of Company
In addition to the above legal forms there are some other possibilities for bodies set up for a specific aim to incorporate. For example there is the Right to Manage (RTM) company for leaseholders who want to take over the management functions of the landlord of their property. The selection of the correct type of company may be complex especially for social or charitable organizations. Sometimes it may be possible to convert one form of company into another. It is therefore best to find an agent who can advise on the right option in a particular situation.