If you’ve decided to proceed with forming a company, the next decision to make is what kind of company you wish to setup.
Thankfully this is usually a straightforward decision, and by far the most popular is a private company limited by shares. This will be right for the vast majority of new businesses starting up, but it’s important to understand the main types of companies you can set up to make sure a limited by shares one is right for you.
Generally companies fall in to two categories, public or private. Then in the case of private companies, there are further classifications beyond that. However, let’s start with a public company.
Public companies are generally used by bigger organisations as they allow you to go to the public in order to raise funding via the issuing of shares. Because of this, they also need to meet a much higher level of legal requirements than private companies.
There are also minimum requirements for public companies in that they must have an issued share capital of at least £50,000, they must have at least two directors and shareholders, and they must appoint a competent company secretary.
It should also be noted that a public company is not automatically able to issue shares via the stock exchange as there are a separate list of requirements before a company will be accepted to do this.
Because of the strict rules and higher investment requirements, most people will find a public company is not for them.
A private limited company on the other hand is open to almost anyone with no minimum investment requirements. There are two main types of private limited companies – limited by shares or limited by guarantee.
Limited by shares is the most popular choice as this is aimed at anyone starting a business with the intention to make a profit.
The only rules for a private limited by shares company is that it must have at least one director and one shareholder (although they can be the same person) and they must issue at least 1 share – usually of a value equal to at least £1. Of course it must also comply with the annual filing requirements and record keeping, but otherwise, the restrictions are fairly relaxed compared to a public company.
To start a limited by shares company you do not have to be based in the UK. Foreign nationals and non-residents can also setup a UK limited company, if they can provide a UK-based registered office address. Usually, when setting up your company, you will be able to take a service that provides an address for you if you do not already have one.
A private company limited by guarantee, basically means that rather than issuing shares, members offer a nominal guarantee for their liability. This type of company is generally used by non-profit companies such as social enterprises or charities rather than businesses designed to generate profit for its owners.
These are the main types of companies to consider and it will usually be quite clear which is the right one for you. In essence, if you have a big investment from two or more directors or shareholders and want to be able to allow the public to invest in your company you may decide a public company is best for you.
However, for most people a private limited company will be best with a private company limited by shares being the best option for those looking to make a profit from their venture whilst a private company limited by guarantee is better for non-profit organisations.