Incorporate your new business
New Company Registration
New Company incorporation
Starting a new business is a major decision. People start new businesses for many reasons, maybe because they have a new idea or proposition which they think will be a success or they may feel they can deliver a product or service better than the current offering. Or maybe they just want to be their own boss!
Not everyone is an expert in legal, financial or fiscal matters and as such, incorporating a new business can be daunting. Below you will see the different types of business entity recognised in the UK to help you best decide on what would work best for you.
Requiring minimal set up and administration, operating as a sole trader is common for new businesses. Registration at Companies House is not required although the business owner should notify HMRC. This type of business is not deemed to be a legal entity in its own right, consequently the owner of the business has unlimited liability to all debts and legal actions.
Whilst sole traders benefit from fewer regulations and reduced filing requirements, the personal risk associated with this type of business may act as an incentive to register as a limited company.
Types of company
Your legal entity
In the UK, when someone speaks about a company as an ownership structure for a business, they could be talking about a number of different entities.
There are also different legal requirements associated with the various sorts of company entities which can be created in the UK.
In the UK, there are four main types of company:
- Public Limited Company (PLC)
- Private Company Limited By Guarantee
- Private Company Limited By Shares
- Private Unlimited Company
Private Company Limited By Shares
With over two million registered at Companies House, private companies limited by shares are the most frequently-used type of company in the UK. They are more commonly referred to as private limited companies and must have the word ‘Limited’ or the abbreviated suffix ‘Ltd.’ at the end of their name.
One of the main reasons why this particular type of company set up is so popular is that, like public limited companies, the amount for which shareholders are liable in the event that the company is wound up is limited to the reserves of the company.
In contrast, a sole trader is personally liable for all debts associated with his or her business. His or her personal assets can be seized to repay debts.
Unlike public limited companies there is no minimum capital requirement for a private company limited by shares, so many are set up with a very small capital investment.
Around 9 in 10 private limited companies in the UK are classified as small or medium sized. This qualifies their directors to submit a simplified set of accounts to Companies House.
Private Company Limited By Guarantee
A private company limited by guarantee limits its guarantors’ liability to a pre-agreed amount that they must pay in the event that the company is wound up.
Non-profit organisations such as charities, clubs, student unions, societies and social enterprises are typical entities that use this type of company to set a low limit to the amount that members (owners) must pay if something goes wrong.
There is no share capital, and therefore no shareholders, in a private company limited by guarantee. Members of the company are guarantors and are often only liable for a nominal sum such as £1 if the company is wound up.
More information about this type of company can be found here.
Private Unlimited Company
There are not that many private unlimited companies, compared to the other types.
There is no cap to the amount that its members are required to pay if the company is wound up, so they tend to be used for companies where insolvency is a very low risk.
Another important quality for private unlimited companies is that they are not required by law to submit annual accounts to Companies House. This makes unlimited companies attractive to businesses that wish to maintain a level of secrecy about their financial status.
Public Limited Company (PLC)
A public limited company, often shortened to just ‘public company’ or abbreviated to PLC, is one that can sell shares or debentures to the general public.
Such companies usually start out as private limited companies before being re-registered as a PLC in order to raise capital.
To become a public limited company, a business must have share capital of £50,000 or more, of which at least 25% must have been paid up before the company can begin trading. Public limited companies are also required to have at least two directors and a company secretary.
All businesses that are listed on a stock exchange are PLCs, but there are many privately held ones that benefit from the status and credibility that being a PLC gives. Shareholders often choose to incorporate as a PLC because they intend to list in the future, or in order to appear larger and have greater financial backing. Being a shareholder in a PLC is often seen as being more prestigious than being a shareholder in a private limited company.
The liability of the company is limited to the value of its reserves.