When someone speaks about a company as an ownership structure for a business, he or she could be talking about a number of different entities.
There are different legal requirements associated with the various sorts of company entities which can be created in the United Kingdom.
In the UK, there are four ‘standard’ types of company:
- Public limited company (PLC)
- Private company limited by guarantee
- Private company limited by shares
- Private unlimited company
There are also a handful of specific types of non-standard companies.
Public Limited Company (PLC)
Public limited companies are oftened called just 'public companies'. The letters can also be abbreviated to 'PLC'.
One of the most significant differences between a public limited company and a private one, that a public company can sell shares or debentures to the general public, usually through a stock exchange.
Such companies usually start out as private limited companies before being re-registered as a PLC in order to raise capital for expansion.
To become a public limited company, a business must have share capital of £50,000 or more, of which at least 25% must have been paid up before the company can begin trading. Public limited companies are also required to have at least two directors and a company secretary.
All businesses that are listed on a stock exchange are PLCs, but there are many privately held ones that benefit from the status and credibility that being a PLC gives. Shareholders often choose to incorporate as a PLC because they intend to list in the future, or in order to appear larger and have greater financial backing. Being a shareholder in a PLC is often seen as being more prestigious than being a shareholder in a private limited company.
The liability of the company is limited to the value of its reserves.
Private Company Limited By Guarantee
A private company limited by guarantee limits its guarantors’ liability to a pre-agreed amount that they must pay in the event that the company is wound up.
Non-profit organisations such as charities, clubs, student unions, societies and social enterprises are typical entities that use this type of company to set a low limit to the amount that members (owners) must pay if something goes wrong.
There is no share capital, and therefore no shareholders, in a private company limited by guarantee. Members of the company are guarantors and are often only liable for a nominal sum such as £1 if the company is wound up.
Private Company Limited By Shares
With over two million registered at Companies House, private companies limited by shares are the most frequently-used type of company in the UK. They are more commonly referred to as private limited companies and must have the word ‘Limited’ or the abbreviated suffix ‘Ltd.’ at the end of their name.
One of the main reasons why this particular type of company set up is so popular is that, like public limited companies, the amount for which shareholders are liable in the event that the company is wound up is limited to the reserves of the company.
In contrast, a sole trader is personally liable for all debts associated with his or her business. His or her personal assets can be seized to repay debts.
Unlike public limited companies there is no minimum capital requirement for a private company limited by shares, so many are set up with a very small capital investment.
Around 9 in 10 private limited companies in the UK are classified as small or medium sized. This qualifies their directors to submit a simplified set of accounts to Companies House.
Private Unlimited Company
There are not that many private unlimited companies, compared to the other types.
There is no cap to the amount that its members are required to pay if the company is wound up, so they tend to be used for companies where insolvency is a very low risk.
Another important quality for private unlimited companies is that they are not required by law to submit annual accounts to Companies House. This makes unlimited companies attractive to businesses that wish to maintain a level of secrecy about their financial status.
Special Types Of Limited Company
In addition to the four main types of public and private companies, there are also a few specific non-standard limited company entities. These are: Community Interest Companies (CICs), Right to manage companies (RTMs) and Societas Europaeas (SEs).
Community Interest Company (CIC)
Community Interest Companies are set up for businesses that seek to be of benefit to the community rather than the shareholders or members of the company. They can be either public or private and can be limited by share capital or guarantee.
Some examples of the type of entities that set up as Community Interest Companies include housing associations, community development trusts and leisure centres. Charities and political parties cannot be set up as CICs.
In order for regulators to allow an entity to become a CIC it must meet some criteria which show it is in fact being established for the benefit of the community and that its assets and any profits will be used for community purposes.
Right To Manage Company (RTM)
A Right To Manage company (RTM) is set up to transfer powers for such things as the maintenance and repair work of a building from the landlord to the leaseholders. All RTMs must be set up as a special kind of private company limited by guarantee.
Societas Europaea (SE)
Societas Europaea, or SE companies, are business entities that can be established in all European Economic Area. When established in the UK, SEs are a type of public limited company which can be formed as a subsidiary of another company or as a holding company. SE companies can also be created by mergers or from an existing PLC.
SEs that are set up in the UK are required to have a registered office and a head office in the United Kingdom and must have a share capital of at least €120,000 (or equivalent).
Next you may be interested in reading about unincorporated associations.
Documents needed for new companies include shareholder agreements and articles of association. Find out why and when to use a shareholders agreement, and how to prevent conflicts between a shareholders agremeent and the company articles.