4 Types of Companies You Can Form in the UK
Knowing the different types of companies that you can form in the UK is the first step towards actually starting one, either on your own or with a partner. Every type of company has its own financial and legal liabilities, and knowing them beforehand is important. Companies like 1st Formations can help you on your path to success by providing all the relevant information and tools necessary for each type of company that you could form.
If you want to set yourself up as an individual trader, all you need to do is register through HM Revenue & Customs (HMRC). Registering through this method means that all the financial liabilities of your company are yours to take care of. On the other hand, setting up a company through the Companies House means you will be able to limit the financial liabilities based on the type of company that you want to form.
Private Company Limited by Shares
More than 90% of all companies that are currently active in the UK are private companies limited by shares. Every such company must integrate the word “Limited” or its abbreviation “Ltd” in their names. Unlike other types of companies, a private company limited by shares does not have a minimum capital requirement. This means that a £1 investment is enough to start trading.
“Limited by shares” refers to the financial liability of the company’s director or group of directors. If the director holds £10 worth of shares, their financial liability is limited to £10.
Private Company Limited by Guarantee
There is no share capital in a private company limited by guarantee. Instead, every member of the company is also considered to be a guarantor. Every company must set a pre-agreed amount that must be covered if the company dissolves. Similar to a company that is limited by shares, the financial liability of each member can be as low as £1.
Thanks to its low liability limit, the majority of private companies limited by guarantee are non-profit organisations such as charities or clubs.
Private Unlimited Company
Unlike the limited counterparts, an unlimited company has no financial liability limit. It’s unwise to start a private unlimited company if there is a good risk of insolvency. One of the main benefits of private unlimited companies is the fact that they are not legally bound to disclose their annual finances to the Companies House.
Private unlimited companies do not have to publish or make their finances public. This could mean a competitive edge against other companies operating in the same niche. It is generally advised for companies to register as private unlimited companies when their insolvency risk is close to 0 and the company is generating sufficient capital to run without the need for bank loans.
Public Limited Company
A public limited company or PLC is the perfect solution for large businesses that also have their shares published on the stock market. The directors and shareholders of the company have a financial liability equal to the value of the unpaid shares that they hold.
It is unusual for a startup to register itself as a public limited company, as the requirements for such a company include a capital of £50,000, with at least 25% paid off. The majority of UK’s public limited companies have started off as a private company and moved up.