According to statistics from Companies House, over 634,000 new companies have been incorporated here in the UK over the last 12 months. That takes the total number of entities on the Companies House register to nearly 4.1 million.
A significant proportion of these will be Private Limited Companies (LTD) and it’s clear to see why. As the name suggests, a limited company limits the liability of company directors and shareholders to their initial investment in the firm. This means the personal wealth and assets of those running the company are not at risk should the company become insolvent. There are potential tax advantages in a limited company too, but that doesn’t necessarily mean a Limited company is the right vehicle for every type of organisation. Below we’ve listed several other entity types that you might like to consider before incorporating your new company.
Most Guarantee Companies are incorporated for non-profit purposes. Any revenue generated will be reinvested and used to pursue the objectives of the company. Companies limited by guarantee are routinely used for charities, community projects, societies and clubs. They are also a popular choice for property management companies, set up to hold an interest in, or manage communal facilities in a property.
A guarantee company has no share capital or shareholders. Instead it has members who undertake to contribute a nominal amount towards any shortfall in the company's assets to settle its debts in the event of its being wound up.
We have all heard of a Limited Company but its sibling, the Unlimited Company is far less known. As the name suggests, an unlimited company does not limit the liability of the company directors and shareholders, meaning that if the company was to become insolvent, creditors would have access to the wealth and assets of all those connected with the company to service any unpaid debt.
Setting up an Unlimited Company then, may appear to be a risky and unnecessary strategy but it does have its merits and uses. Confidentiality is a key benefit to this class of business. An Unlimited Company is not required to file accounts at Companies House and can therefore keep its financial data away from competitors and the media. With no filing obligations, an Unlimited Company becomes a useful and simple vehicle for completing specific transactions, where a long-term enterprise is not needed.
Compared to its limited counterpart, it is also easier to return capital to shareholders. That’s because the restrictions in this area defined in the Companies Act 2006, only apply to limited companies. This flexibility can be especially useful when employing a group structure, as it gives more options to move capital between entities in the group.
Right to Manage (RTM)
The Right to Manage (RTM) was introduced through the Commonhold and Leasehold Reform Act 2002. It gives leaseholders the statutory right to collectively take over the management of their property from the landlord by setting up a special company - a right to manage company (RTM). An RTM makes decisions about the management and upkeep of their block‚ including the services, insurance, repairs, grounds keeping and decoration. Leaseholders do not need to prove that the freeholder / landlord has been mismanaging the building to gain control of its upkeep, however this is often the motivation for initiating a Right to Manage company as is a possible reduction in service charges.
It is important to note that an RTM cannot own a building.
Limited Liability Partnerships (LLP)
Limited Liability Partnerships or LLPs for short, were introduced in the UK in 2001 and share some of the same characteristics as a Limited Company. They both have to be incorporated at Companies House and both involve higher reporting and filing requirements than the option of being a sole trader or a partnership. Outside of that however, they are quite different.
A Limited Company can raise funds by selling shares, and shareholders can earn money through dividends. An LLP however, is owned wholly by the partners of the firm. The partners agree how much liability they are willing to take on and how the earnings will be distributed between them. As the firm grows and new partners come on board, the distribution structure will change.
From a tax perspective, all income in an LLP is taxed at the Partner level and that can mean LLPs become quite inefficient as earnings grow.
Public Limited Company (PLC)
A Public Limited Company is in essence, a limited liability company whose shares can be freely traded with the public and listed on a stock exchange. PLCs are the only type of company that can raise money by selling shares to the general public. This special characteristic however, comes with strings attached.
Incorporation requires a minimum of two directors and a qualified company secretary must be appointed. There is also a minimum share capital requirement of £50,000 (or the euro equivalent). A new plc cannot conduct business or exercise borrowing powers unless it has obtained a trading certificate from Companies House, confirming that it has the minimum allotted share capital.
As with a Limited Company, annual returns must be filed ever year with Companies House. However, if the PLC has at least 2 of the following, it will also require the accounts to be independently audited:
- An annual turnover of more than £10.2 million
- Assets worth more than £5.1 million
- 50 or more employees on average
We hope you have found the topic useful. If you would like to know more about a particular type of company or talk through your specific formation requirements, please get in touch:
Senior Business Development Manager
Tel: +44 (0) 117 918 1388