A limited company is one of the most popular types of business structure; this is because a limited company provides a limited amount of financial liability for shareholders and owners. The financial liability of the shareholder or the owner is limited to the value of their shares or, for a company that is limited by guarantee, their guarantees. This means that the company owners are not liable for any business debt beyond the values of their shares or guarantees.
There are many types of limited companies that you can form in the UK. These types of company are known as:
Private Limited by Shares (LTD)
In order to meet the Charity Commissions requirements a Company Limited By Guarantee must have drafted into its Memorandum of Association several clauses to ensure that they are set up and carry out their activities for the right reasons. These include a ‘charitable objects clause’, ‘non-profit distribution clause’ and a ‘dissolution clause’. These are all things that we can give you guidance and help with.
If the charity company will have an income in excess of £5,000 then they will need to properly register with the Charity Commission and be fully assessed by them. It can take time to register, but we can help you with guidance where necessary.
Part of the assessment includes looking at the ‘objects’ of the charity. This is a clause in the memorandum of association which is clearly worded to set out that the fact that the objectives of the charity are exclusively charitable and nothing more. If objects are worded in an obscure or confusing manner, or in a way which mean that the objectives of the company are not exclusively charitable, then the charity commission can refuse registration and the company will not be legally deemed to be a charity.
Private Limited by Guarantee (LBG)
- This company structure is most commonly used by charities and non-profit or community organisations. Companies limited by guarantee are managed by directors and owned by guarantors rather than shareholders. The guarantors commit to paying a certain amount of money toward company debts if the business ever experiences financial difficulty.
Limited Liability Partnership (LLP)
- A limited liability partnership is a relatively new type of business structure that combines the limited liability of a company with the flexibility and tax arrangements for a traditional limited partnership. In a limited liability partnership there are no directors, shareholders or guarantors but there must be a minimum of two members, or partners.
Public Limited Company (PLC)
- Public Limited Companies are limited by shares, very similarly to private limited companies limited by shares. However, the main difference between the two is that the shares from a PLC are made available for purchase by the public. The involvement with the public means that there are stricter regulations placed on Public Limited Companies.
Private Unlimited Company
- In a private limited company there is no restriction on the financial liability of the business owners. The owners may not have to disclose as much information as the owners of a company that is limited by shares but they will also be considered financially responsible should the business incur any costs.
What are the advantages of starting a Private Company Limited by Shares?
The Company Warehouse will always recommend that you choose for your business to be a private company limited by shares as it is quick and easy to form and comes with a range of advantages for the owner and shareholders.
There will be limited financial liability meaning that the owners and shareholders are not personally liable for the company’s debts.
As a shareholder or director of a limited company, you can pay yourself through a mix of methods which will allow you to reduce your personal tax liability.
Lots of larger companies will only deal with other limited companies because it reduces their business risks. You will gain much more credibility with other companies if you are officially registered with Companies House.
Setting up your business as a company that is limited by shares will give you greater control and confirm your ownership over the company. You will be able to put a formal legal structure in place that determines who owns what and who makes the business decisions.