Deciding which business structure to operate under is often one of the first major business decisions that start-ups make. If you decide to register a limited company (a process known as incorporation) then you might encounter the different types of company structure which are available.

Private limited companies are probably the most common type of structure for brand new companies. The ‘limited’ part of its name refers to the owners’ personal liability for any debts which the company has. This is because the company is a separate legal entity to its owners, so the extent to which they are personally responsible for any debts is ‘limited’ to the amount of shares they own.

It means that each shareholder (a person who owns shares) is liable based on the proportion of shares that they own in the company.

For instance, in a company with two shareholders where each shareholder has the same amount and type 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 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 publicly 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!
 

Companies which are limited by guarantee don’t have shareholders, and don’t issue shares. Instead, 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 not-for-profit organisations such as charities or clubs.

It’s quite rare to form an unlimited company, but not unheard of. Most people decide to form a company so that their personal liability is limited, but 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, 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.

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