What types of limited companies are there in the UK?

A limited company is a specific type of company registration that offers investors and managers protection from liabilities incurred by the business.

This protection is known as “limited liability.”

This is known as an incorporated structure, meaning the company has its own identity, responsibilities, and rights in law.

It exists as a separate legal ‘person’ from its owners.

This allows the company itself to sue or own its assets, not its owners or investors.

Ownership is divided into units called shares, and whoever purchases or receives these is referred to as a shareholder.

Shareholders may receive dividends from profits and have voting rights, depending on the class of shares they hold.

What does a limited company mean?

Here are the key features of the limited company structure:

Financial Separation from Owners

• A limited company has its own financial management in place. Its finances are legally separate from those of the person(s) who run or own it (unlike a sole trader).
• This separation helps reduce personal financial risk for business owners.

A Separate Legal Entity

• The company is a separate legal entity from its owners or shareholders and has its rights and responsibilities under the law.
• It can enter into contracts, borrow money, and own property in its name.

Profit Retention and Distribution

• Because of its special legal status, a company can retain any profits it makes (after tax is paid).
• Depending on the type of company, profits may be reinvested in the business, distributed to shareholders as dividends, or used for a defined community purpose.

Limited Liability Protection

• The benefit of this arrangement is that the owners of a limited company are not personally responsible for the firm’s debts.
• The shareholders, on the other hand, do have limited liability, usually the value of a person’s investment in a company or partnership.

Management Structure

• The other big difference with a limited company (versus a sole trader) is that the owners may not run the business on a day-to-day basis.
• This distinction allows for professional management without requiring ownership.

Role of Directors

• Limited companies are led by a Board of Directors that makes management decisions on behalf of the company. This may include the owners, but this is not explicitly required.
• Directors are appointed by shareholders and act in the best interest of the company.

Legal Responsibilities of Directors

• Directors have a significant list of legal responsibilities in their practice and record-keeping.
  Failure to adhere to these standards can result in you being struck off from holding this position in the future.
• They are also subject to penalties or disqualification for misconduct or non-compliance with the rules.

Here are the main features of the different types of companies.

Private limited company – limited by shares

The most common type of limited arrangement in the UK is limited by shares.

These firms have a ‘share capital’, which is owned by their shareholders.

The most a shareholder can be held responsible for in relation to the firm is the amount owed in return on their shares.

Once this is paid, no further financial liability applies to the shareholder.

You can be a sole director of this type of company.

The obligation to have a separate ‘company secretary’ was abolished under the terms of the Companies Act 2006. However, some companies still appoint one voluntarily for administrative support.

Private limited company – limited by guarantee

This is where individuals who nominate themselves as “members” serve as guarantors for the business’s responsibilities, rather than shareholders. This is done by members agreeing to cover a certain amount if the company is wound up.

Non-profit organisations and charities often use this method, and liability is usually limited to just £1.

This structure helps ensure that profits are reinvested to achieve the organisation’s aims.

You can be a sole director of this type of company.

Find out more in our dedicated guide to guarantee companies.

Public limited company (PLC)

The final type of limited companies is usually the largest of the bunch. These can offer their shares to members of the public, and have their stock listed on the stock exchange (providing they meet the stock exchange’s own rules for listing).

PLCs are commonly used by larger businesses seeking to raise significant capital.

These structures are subject to some extra rules:

• A PLC must have at least two directors (though shareholders would usually expect even more), and the company secretary must be appropriately qualified to hold the post and be prepared to complete and file all the necessary paperwork with Companies House every year.
• The secretary must meet formal qualification or experience criteria.
• The total share capital for the company must be over £50,000. This can be in any combination of currencies as long as the total passes the required mark.
• At least 25% of the nominal value of the shares must be paid up.
• This £50,000 must come from more than one source, so there must be at least two shareholders.

This list of additional requirements means many firms do not enter the market as a PLC. Instead, there is a progression from being a standard limited company to a publicly traded firm as the business grows.

Becoming a PLC offers greater capital access but comes with increased regulation and public scrutiny.

Limited Liability Partnerships (LLP)

The LLP business structure is often used by accountancy and law firms.

It provides the same type of liability afforded by the standard private limited company structure, but does not require directors or shareholders.

Typically run by several partners (2 or more), its members are taxed as ‘self employed’ individuals, rather than ’employees’ or directors.

An LLP is a separate legal entity and must be registered with Companies House. Members can be individuals or companies.

Community Interest Company (CIC)

A Community Interest Company is a special type of limited company created for businesses that want to use their profits and assets for the public good.

CICs can be limited by shares or guarantee, and are registered with Companies House, but also regulated by the Office of the CIC Regulator.

CICs are commonly used by social enterprises and mission-driven businesses.

Here are some of the key features:

• Designed for organisations that benefit the community, not private shareholders.
• Can be set up as limited by shares (like a normal LTD) or limited by guarantee (standard for non-profits).
• Must pass a community interest test and include an asset lock in their articles of association to protect resources from private distribution.
• Profits can be reinvested in the business or used for a social cause, but dividend payments are capped.
• Still enjoys limited liability, protecting members and directors personally.
• Must file a CIC report annually, plus standard Companies House filings.

CICs offer a flexible legal structure for combining business with a strong social or environmental purpose.

Private Unlimited Company

Although the liability of members is not limited, we’ve included the Private Unlimited structure here for the sake of completeness.

Under this relatively rarely used structure, the owners are financially responsible for the company’s debts. They may or may not have share capital.

This structure is sometimes used by businesses that require confidentiality, as financial accounts do not need to be publicly filed unless specific thresholds are met.