Limited companies are one of the most popular legal structures for businesses in the UK. Choosing between operating as a limited company or as a sole trader is often the first business decision most of us make.
Business owners who decide to form a limited company then need to make sure they choose the correct type. Read our simple explanation of the different types of limited companies.
Private company limited by shares (Ltd.)
Business start-ups or sole traders who are making the switch to a limited company usually form a private company which is limited by shares.
Liability is shared by the shareholders, and the extent to which each person is liable is based on the proportion of the shares that they hold.
For instance, each shareholder has the same amount of shares, they are all equally liable. If one shareholder has 60% of the shares, and the other shareholder has 40%, then liability also follows this 60/40 split.
Public limited company (PLC)
Public limited companies (PLCs) are, like all limited companies, legally distinct from their owners.
They’re broadly similar to private limited companies, but in this case shares are publically available to buy and are traded on the stock exchange. There are also even more statutory requirements that they must meet!
This includes having a minimum of two members, the company name ending in public limited company (or plc), a company secretary, and at least £50,000 in issued share capital. Phew!
Private company limited by guarantee (LBG)
Companies which are limited by guarantee don’t have shareholders, and don’t issue shares. Members of the board act as guarantors who are responsible for the business and any debts, and are liable for the amount that they guaranteed to the company.
Private companies which are limited by guarantee tend to be set up by non-profits, such as charities or clubs.
It’s quite rare for an unlimited company to be formed, but not unheard of. Most people decide to form a company so that their personal liability is limited. But as the name suggests, an unlimited company means unlimited liability, a bit like being a sole trader where you’re personally liable for everything.
Unlike being a sole trader though, you might not have to go it alone. Operating as an unlimited company means you could have other shareholders with whom to share liability.
The unlimited liability aspect of this type of company can actually be a source of confidence for some potential creditors and lenders. It’s based on the idea that the shareholders of an unlimited company have more of their own interests at stake, and so the company is less likely to become insolvent.