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Company Structures - A guide to a legal structure for your Company

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.

Limited by Shares

A company limited by shares is easily the most common type of UK company. This type of company is owned by a group of shareholders. A company is only legally required to have at least one shareholder. According to UK regulation, every new company formed in the UK must have at least one shareholder, and at least one director. That said, these roles can be filled by the same person if need be. On the flip side, a company can have as many shareholders and directors as its owners want to create.

The primary benefits of forming a company limited by shares are as follows:

  • Limited financial liability

    In a company limited by shares, the liability of shareholders will always be limited to the value of their shares in the company. That means that each shareholder’s personal assets are 100% protected if the company ends up going under, and it is generally the main reason that most startup founders opt for this company type. Armed with limited liability, all co-owners within a company are able to share profits without facing personal liability for their company’s debts.

  • Corporate boost

    When you incorporate your business as a limited company, it will usually make your business more attractive to potential investors. It demonstrates that your business is well organised, well established and completely reputable.

  • Share options

    With a limited company, you can create and sell more shares at any time to raise additional capital for your business. You might find this a more cost-effective method of funding than obtaining a bank loan.

  • Tax smart

    Companies limited by shares are also good from a tax point-of-view. This is because you are able to distribute profits to your shareholders through salaries and dividends, ensuring a higher degree of tax efficiency.

Another point to consider is that, unlike a sole proprietorship, a limited company is its own legal entity. That means you can pass on ownership at any time, and the company will even exist in the event of the owner’s death.

You could also decide to turn your private limited company into a public limited company (PLC). PLCs are similar to private limited companies, except that company shares are made available for sale to members of the public. As a result, PLCs are subject to stricter tax regulations.

Register a Private Limited Company Online
from £7.99 and start trading within 3 hours *

Limited by Guarantee (LBG)

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:

  • Asset Protection

    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.

  • Limited Debt Responsibility

    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.

  • Added transparency

    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.

Register a Limited by Guarantee (LBG) Company Online
from £19.99 and start trading within 3 hours *

Limited Liability Partnerships (LLP)

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:

  • Ensuring LLP members meet all their statutory obligations
  • Ensuring Annual Returns and annual accounts are filed accurately and sent in on time
  • Notifying Companies House of any material changes
  • Overseeing formalities if the LLP dissolves.

Because of the way in which LLPs are taxed, this company structure is not suitable for non-profit organisations.

Register a Limited Liability Partnerships Online
from £19.99 and start trading within 3 hours *

Still unsure which structure is right for you?

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.

To get in touch with a member of staff, visit our Contact Us page.