As an official Companies House filing partner, Trust Formations can assist you in registering three different types of limited UK companies These are Companies Limited by Shares, Companies Limited by Guarantee (LBG) and Limited Liability Partnerships (LLPs).
Before you can decide which structure is best suited to your own business needs, this guide will briefly assess the primary differences between each company type.
If you are forming a non-profit organisation, you will most likely want to form a company limited by guarantee (LBG). For all intents and purposes, a non-profit will usually be defined as a club, co-operative or society. A charity can be defined as any company that utilises all excess cash to contribute towards a recognised, charitable cause.
An LBG company is different from a company limited by shares in two ways. First, a company limited by guarantee does not distribute its profits to its owners. Second, a company limited by guarantee has guarantors, as opposed to shareholders. A guarantor agrees to pay a certain amount of money, known as a ‘guarantee’, if the company goes into debt or folds.
The primary benefits of taking on an LBG structure are as follows:
The reason most non-profits choose to form a company limited by guarantee is because, using this structure, its guarantors are able to protect their own personal assets throughout the process. They are only liable for the amount of money they have declared within their initial guarantee.
Because a company limited by guarantee is its own legal entity, it is separate from its owners. That means the company, not the owners, will be responsible for paying its own debt.
If you are planning to form a non-profit, adding a limited company status to your organisation ensures a higher degree of corporate transparency. This will give members peace-of-mind in knowing you are running a reputable group.
A company limited by guarantee can technically distribute profits; however, there are a couple of rules. First, profits can only be distributed if the company states specifically this will be done in its articles of association. Second, if an LBG company does choose to distribute profits to its members, that company will consequently lose its right to claim charitable status.
If you are planning to start some sort of business partnership, such as an architectural or solicitors firm, you will most likely reap the greatest amount of benefits from forming an LLP.
An LLP is similar to a company limited by shares, because LLP owners also receive legal protection for their personal assets. But an LLP offers three unique benefits. First, an LLP is not subject to corporation tax. Second, an LLP does not have any directors or shareholders, but an unlimited number of members. Third, an LLP is not subject to the rules of the Companies Act of 2006. Instead it must adhere to the rules outlined in the Limited Liability Partnership Act 2000.
The reason that LLPs are ideal for solicitors, architectural or accountancy firms is because they ensure a degree of equality for various stakeholders. Company profits are split among an LLP’s partners, and LLPs enjoy tax transparency because they are not subject to corporation, income or personal gains taxes. Instead, each partner is taxed on their share of the profits. In some cases, another company can become an LLP partner. But that company will be subject to pay a corporation tax on its share of profits rather than an income tax. LLP members are not required to be domiciled in the UK.
LLPs should have at least one designated member who is willing to take on additional responsibilities within the organisation. These responsibilities include:
Because of the way in which LLPs are taxed, this company structure is not suitable for non-profit organisations.
If you are still not sure what kind of company structure you would like your business to adopt, our team of expert customer service agents will be happy to advise you.
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