Company Formations

The Different Company types in the UK

Catherine BoxallCatherine Boxall
Last updated on:
November 19, 2022
Published on:
March 18, 2022

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There are many different types of companies in the UK. Companies differ as they do not all operate in the same way and they are therefore classified to reflect these differences. The classification, or type, of the company will depend on factors such as company ownership, liability and business structure. If you decide to incorporate your company, you will need to make sure that you are aware of the type of company you are incorporating so that you take the appropriate steps to register with Companies House. In this article we will explain the different company types and draw out their key differences.

Private Companies

Private Limited Company (Ltd)

A private limited company is the most common type of company that businesses decide to incorporate as.

Private company limited by shares

This company structure is the most popular of all limited liability companies. Under this arrangement, a company has a share capital, and the individual's liability is limited to the amount of unpaid shares of this capital that they hold. Limited liability businesses often have Ltd after their company name.

Private company limited by guarantee

A private company limited by guarantee is similar to a private company limited by shares, but unlike private companies limited by shares, members are guarantors, not shareholders. In this case, the members essentially set a limit on what they will contribute to the company's assets if it is wound up that can be paid to creditors and other parties claiming from the business.

Private unlimited company

A private unlimited company differs from public limited companies and private limited companies. In private unlimited companies, members’ liability is unlimited in private unlimited companies, regardless of whether they are incorporated with or without share capital.

Limited Liability Partnership (LLP)

A limited liability partnership (LLP) is an organisational form that allows all partners to have limited liabilities. Unlike a traditional partnership, LLP partners are able to directly manage the business. The ability of LLP partners to manage the company without the need for a board of directors makes it practical to run a small business using this business structure. Unlike limited companies, an LLP is not an entity that is taxable so they are not required to pay corporation tax. Rather, the untaxed profits are distributed between the members who are then taxed on their portion via Self Assessment tax returns.

Public Companies

Public Limited Company (Plc)

A plc differs from a private limited company in that it can offer its shares for sale to the general public, for example via the stock exchange. It has a share capital and with its members being limited in liability to the amount unpaid on their shares. Public companies often have different legal requirements  under company law in regards to their company formation than private companies. For example, in public companies, at least 2 directors must be appointed compared to one in a private company and it must have a qualified company secretary.

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Special Types of Companies

Alongside the more traditional models mentioned above, there is also a collection of so-called non-standard types of limited company.

Community Interest Company (CIC)

Community-interest companies are business entities 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 private or public and they can be limited by guarantee or shares. Housing associations and leisure centres are typical examples of CICs and for something to be granted CIC status it must meet criteria that shows its benefit to the community.

Right to Manage Company (RTM)

A Right to Manage company is a special kind of private company limited by guarantee set up by leaseholders to take over the powers of a landlord in relation to the maintenance and repair work of a building.

UK Societas

A UK Societas is a European public limited liability company which was converted to a UK Societas from 1 January 2021 (end of the Brexit transition). A UK Societas has the same legal personality as when it was a Societas Europaea (SE) and it has a registered office and its head office in the UK.

Sole Trader

Whilst not a company, it is important to outline what it means to be a sole trader and how this type of business differs. A sole trader runs their own business as an individual (as opposed to a separate legal entity like a company) and is self-employed. They are personally responsible for all profits (taking into account income tax) and losses that arise from their business and therefore have unlimited liability. Like LLPs,  sole traders are not required to pay corporation tax.

Individuals need to set up as a sole trader via HMRC if they earn more than £1,000 from self-employment in the previous tax year. An individual might also set up as a sole trader in order to prove their self-employment status or to make voluntary Class 2 National Insurance payments that might help them qualify for benefits.

Are you ready to start a business?

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About Legislate

Legislate is a contract creation and management platform used by small businesses and startups across the UK. Once you have established your company, you will likely need to make new hires to help support you. Having gone to the effort of correctly incorporating your company, you will want to ensure that you have robust contracts in place in order to protect your small business. Legislate provides lawyer-approved contracts on no legal budget which can be tailored to suit your circumstances in a safe and controlled way. View our contract suite or sign up for free today.

The opinions on this page are for general information purposes only and do not constitute legal advice on which you should rely.

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