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The Different Types of Company (UK)
To the outsider hearing different jargon thrown around in relation to companies can be a bit confusing. That said, it is actually a very simple ordeal.
This hub sets out the clear boundaries between types of companies, and emphasises those companies that are not particularly relevant to any but a minority of individuals.
4 Types of Registration, 1 Worth Remembering
A company can be created in just 1 of 4 ways:
- Registration of documents with the Registrar of Companies under the Companies Act.
- Registration with a public official or body under a different act. For example under the Charities Act 1993.
- By statute.
- By Royal Charter (e.g. The BBC).
Overwhelmingly, it is only the first method that is of interest, it being the most common and so the type of company that most people think of when they hear the word spoken generally.
Two Considerations: Limited vs Unlimited; Public vs Private
Under current legislation (The Companies Act 2006 - the longest statute to date) companies can be either:
- Limited or unlimited, and
- Public or private
Hence you can get a Public Limited Company (plc), a Private Limited Company (Ltd) or a Private Unlimited Company. Note: you will never see an unlimited public company as public companies must be limited by shares (after all this is what is being offered to the public).
- Limited by Shares
Here the company has a share capital divided into shares which are issued to its members (according to how much capital they each put in). For example, a company might have £1,000 in share capital, divided into 1,000 shares of £1, and issue 500 shares to each of its two shareholders.
- Limited by Guarantee
s3(3) CA 2006 defines this type. Here members are only liable for anything when the company is wound up (they pay what they agreed to pay).
Here members must contribute as much of their wealth as is necessary to satisfy the company's debts upon liquidation. Although harsh on members, such a company has lighter disclosure requirements compared to limited companies.
Basic Differences Between Private and Public Companies
Defined by s4(1) Companies Act 2006
Defined by s4(2) Companies Act 2006
Can be limited or unlimited
Can only be limited (and only by shares)
Has no minimum share capital requirement
Has a minimum share capital requirement
If limited, followed by 'Ltd' or 'Limited'
Followed by 'plc'
Shares may not be offered to the public
Shares may be offered to the public
3 Other Types of Companies Which May (Sometimes) Crop Up
- Community Interest Companies (CICs)
s6 CA 2006 recognises the CIC. The objects of a CIC must intend to benefit the community, and an annual report must be produced to show the company's efforts in achieving this. CICs enjoy lighter regulation but are still extremely uncommon. In 2015, only 1 in 200 new companies were CICs.
- European Public Limited Company
Here there is cooperation between two or more companies each in a different EU Member State. Once again, this type of company is extremely rare (only about 2,500 of them exist as of March 2016) and involves huge companies like Allianz, Louis Vuitton and E.ON.
- The Limited Liability Partnership
Under the Limited Liability Partnership Act 2000 LLPs can be incorporated to create a body with a separate legal personality but maintain the same relationship between partners as a regular partnership enjoys.
Registration Under the Company's Act 2006
Every company is registered by the government agency "Company's House".
Registration simply means delivering an application (with the needed documents) to the Registrar of Companies for England and Wales (or Scotland, where applicable). This can now be done online to save both time and money.
The application must contain the following basic information:
- The name
- The geographical location of registration (England, Wales, Ireland or Scotland)
- The members' liability (limited/unlimited)
- The status it will have (public/private)
5 Supporting Documents to be Provided:
- Memorandum of association
Includes a statement that the subscribers want to form a company, and if it is limited by shares, that they agree to take at least one share each.
- Articles of association
These are the rules of the company. Unless otherwise provided, the model articles appropriate for the year of formation and the type of company apply.
- Statement of capital and initial shareholdings
The total number of shares that will be issued needs to be disclosed, as well as an account of who gets what.
- Statement of proposed officers.
Who will be the directors and who will be the secretaries. The consent of each person to adopt this role must be provided.
- Statement of registration compliance with the Companies Act 2006.
(Speaks for itself)
A fee is charged to register a company but this is negligible. It is currently £40 for a private company limited by shares (only £15 if done online).
As you will notice, although there are various types of company like the CIC, LLP and European Public Limited Company, it is mostly just private and public limited companies registered under the CA 2006 that are of relevance in most situations. This makes it a lot clearer for anyone trying to understand the world of business or corporate law generally!