Why are there different company types?

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Hi there, I would like to form a new company in England. I am a bit confused by different company types, though. There appear to be several different kinds, but I am having trouble understanding why. Can someone please advise me why there are different company types? Just so I can decide which is right for my business.

Answers

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There are different types of companies to suit different types of businesses. Once you understand a little more about each structure, it will become clear which one will suit you best.

The most popular type of company is a Private Company Limited by Shares:

  • Designed for people who want to run a business to make money for themselves.
  • Suitable for all sizes of businesses, including start-ups.
  • Can be privately owned and managed by one person or lots of people. The owners are known as ‘shareholders’.
  • Can be divided up into shares. This enables segments of the business to be sold in exchange for capital investment or some other form of payment.
  • Provides limited financial liability to the owners of the business. The are liable for no more than the price they agree to pay for their shares.
  • Shareholders receive a share of any available profits.

An alternative type of company is a Private Company Limited by Guarantee:

  • Designed for people who want to set up a nonprofit or charitable organisation in which all income is kept in the business.
  • Can be privately owned and managed by one person or lots of people. The owners are called ‘guarantors’.
  • There are no shares because this type of company is not designed for those who wish to make a personal profit from their investment.
  • Provides limited financial liability to the owners of the business. They are liable for no more than the value of their personal guarantees.
  • Guarantors do not normally receive a share of the profits.

For large businesses, a Public Limited Company structure is available:

  • Designed for established profit-making businesses that wish to trade on the stock exchange and sell shares to the public.
  • Shares are owned publicly by multiple people and/or other companies
  • Minimum issued share capital requirement of £50,000
  • Legally required to appoint at least two directors and one qualified company secretary
  • Shareholders enjoy limited liability. They are liable for no more than the value of their shares.

A Limited Liability Partnership/LLP is a popular and ideal alternative to an unlimited general partnership:

  • Designed for people who want to run a profit-making partnership whilst protecting their personal finances from creditor liability.
  • Popular with accountants and solicitors.
  • Privately owned and managed by two or more people known as members or partners.
  • No shares, shareholders or directors; only partners.
  • Offers same flexible internal structure as a general partnership.
  • Provides limited financial liability to all members. The are liable for no more than the money they invest and the price they agree to pay if the business becomes insolvent.
  • Members are self-employed. Their share of partnership profits is their income.

I hope these brief overviews give you a better idea. You can click on the links above to find out more about each type of company. If you are at all unsure which one is best, I would advise speaking to an accountant or business advisor.

a year ago
 

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