This article gives an overview of the different types of company structure in the UK. Companies999 currently offer Private Limited Companies, but will be offering Public Limited companies and Limited Liability Partnerships in the near future.
Private Limited Company
Private Limited Companies, also known as LTDs, are the most popular company structure in the UK. LTDs are a legal entity in themselves, meaning the company’s finances are separate from the owners. They are either limited by shares, meaning the company has shares which cannot be traded with the general public, or limited by guarantee, which means the company has no shares or shareholders, but instead has members who are bound by a guarantee in the company’s articles of association. This obligates them to pay the company’s debts up to a set amount, generally of £1.
- Limited Liability. If the company fails and must close, the shareholders or members do not risk losing their own personal assets.
- Restricted Trade of Shares. Shareholders must agree to the sale or transfer of shares. Shares cannot be sold to an outside buyer, which reduces the possibility of unfavourable transactions.
- Separate Entity. A Private Limited Company is a separate legal entity from their owners. This means that the company will continue even in the event of the owners leaving the business. This gives security for employees and other members of the company.
- Tax Advantages. Private Limited Companies are only taxed on their profits. They are usually charged 19% Corporation Tax on profits, unlike sole traders and partnerships who pay around 20-45% Income Tax.
- Expense. Private Limited Companies are more expensive to set up than sole traders or partnerships.
- Complex Accounts. There are stricter and more complicated rules governing LTD accounts than sole trader or partnership accounts. Audited annual returns and accounts must be made to the Registrar of Companies. This can be very time consuming.
- Lack of Control. Owners do not make all the business decisions. They have to agree with directors about how the company is run.
Public Limited Company
Public Limited Companies (PLCs) have limited liability, but unlike LTDs, have the option of selling their shares to the public. Two directors and one secretary are needed to set up a PLC and a minimum of £50,000 in shares is needed to start a company.
- More Capital. Shares can be traded with the general public and anyone can invest into the business. Therefore more capital can be raised. Also, banks are more willing to lend more money to PLCs than other types of businesses.
- Higher Status. Public Limited Companies are often have more prestige than Private Limited Companies, so will benefit from more publicity.
- Lower Risk of Losing Money. As PLCs often have more shareholders than other companies, the risk of losing large sums of money is reduced. It also prevents individuals from having too much control over the business, as responsibility is shared with many others.
- More Regulatory Requirements. There needs to be two directors and one secretary to start a company, whereas only one director is needed for a Private Limited Company. A trading certificate must also be obtained from Companies House.
- Higher Levels of Transparency. Accounts need to be audited and data needs to be disclosed in much greater detail than with other businesses. This information is then publicly available and can attract media scrutiny.
- Higher Initial Financial Investment. £50,000 is the minimum share capital needed to trade. With Private Limited Companies, an investment of just 1p can be made before trading begins.
- Lack of Control. It is harder with Public Limited Companies to control who runs the business. The original shareholder may lose control, if someone else buys a larger share of the business. There is also takeover risk.
Limited Liability Partnerships
Limited Liability Partnerships (LLPs) are partnerships owned by members. There are no directors or shareholders, unlike other types of businesses. At least two members are needed to start a company. Some or all of the partners have limited liability.
- Flexibility. The internal management structure is very flexible. The members will have a written agreement about how the business is run and how profits are distributed.
- Tax Transparency. LLPs are not taxed as companies. Instead, members are taxed as self-employed individuals, but pay National Insurance and Income Tax on their share of business profits.
- Easy to Appoint Members. As there are no shares in LLPs, it is easy to appoint new members. Existing members only have to agree who can become a partner.
- Lack of Privacy. Financial accounts and members details need to be disclosed to Companies House for the public record.
- Higher Income Tax. Because members are classed as self-employed, they can be taxed at as much as 45%, while companies are taxed at a flat rate of 20%.
- Lack of Investment Opportunities. Because there are no shares in LLPs, portions of the business cannot be sold to non-members, limiting the investment opportunities of the company.
Once you choose the right company structure for you, our Steps to Success post will helpfully guide you through everything you need to consider before incorporation.
For more information, we provide a Business Consultation to fulfill all your business needs.