What kind of company should I form?

1

I am a little bit confused. I am getting ready to apply for company status for my new business, but I’m not quite sure what type of company I should form. I see most of the formation agents do limited by shares, limited by guarantee and LLPs, but I’ve got no clue what any of that means or what sort of benefits they might have over one another. Simply looking for something simple. Thanks in advance.

Answers

1

The three types of limited companies that you mention will all provide you with limited liability - this basically means you have reduced financial responsibility for any business liabilities that may arise. However, each one is better suited to different types of businesses:

  1. Company limited by shares = for people who want to generate profit through their business to keep for themselves.
  2. Company limited by guarantee = for people who want to run a not-for-profit business or charity and not take any income for their own personal use.
  3. Limited liability partnership (LLP) = for people who work in certain types of professions that are usually run as partnerships.

Limited by shares:

  • Most popular company structure for profit-making businesses - the types of businesses people set to make a living.
  • Owned by shareholders
  • Managed by directors
  • Can be owned and managed by one person - the same person/people can be directors and shareholders
  • Can issue any quantity of shares - minimum of 1 required
  • Pay 20% Corporation Tax on profits

Limited by guarantee:

  • Best suited to not-for-profit businesses and charities.
  • Can also be set up by profit-making businesses
  • Owned by guarantors
  • Managed by directors
  • Can be owned and managed by one or more people - the same person can be a guarantor and director
  • No share structure or shareholders
  • Pay 20% Corporation Tax on taxable income

Limited Liability Partnership:

  • Similar structure to a traditional general partnership
  • Popular with professionals like accountants and solicitors
  • Owned and managed by two or more partners (‘members’)
  • No share structure, shareholders or directors
  • Each partner is taxed as a self-employed individual - no Corporation Tax liability
a year ago
 

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