Types of limited companies in the UK explained

A limited company is a specific type of company registration that offers its members 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 distinct identity, responsibilities, and legal rights.

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

This allows the company itself to enter into contracts, own assets, sue and be sued in its own name.

In a company limited by shares, 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 own rights and responsibilities under the law.
• It can enter into contracts, borrow money, and own property in its name.

Profit retention and distribution

• Due to its special legal status, a company can retain any profits it generates (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 normally personally responsible for the firm’s debts.
• In a company limited by shares, a shareholder’s liability is generally limited to the amount, if any, unpaid on their shares.

Limited liability does not protect a director from their own wrongdoing or from debts they have personally guaranteed. See our guide to what limited liability means for more details.

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 managed by their director or directors. In a small company, the directors and shareholders are often the same people, but this is not required.
• Directors are responsible for managing the company and have statutory duties towards it.

Legal responsibilities of directors

• Directors have a significant list of legal responsibilities, including duties relating to the running of the company, accounts and company records. Failure to comply can result in penalties and, in serious cases, disqualification.
• Directors can be disqualified for misconduct or failure to comply with their legal responsibilities.

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 a company limited by shares.

These firms have a share capital, which is owned by their shareholders. Read more about different classes of shares.

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

Once the shares are fully paid, no further financial liability as a shareholder normally applies.

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

The obligation for a private company 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.

Read our guide to setting up a limited company.

Private limited company – limited by guarantee

This is where individuals who nominate themselves as “members” serve as guarantors rather than shareholders. This is done by members agreeing to contribute a certain amount if the company is wound up.

Non-profit organisations and charities often use this method, and the amount guaranteed is often just £1.

This structure is commonly used where profits are intended to be reinvested to achieve the organisation’s aims.

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

Find out more in our dedicated guide to companies limited by guarantee.

Public limited company (PLC)

The final type of limited company is usually the largest of the bunch.

PLCs can offer their shares to members of the public. They can also have their shares listed on a 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.
• It must have a company secretary who meets the statutory qualification or experience requirements.
• Its allotted share capital must be at least £50,000 (or the prescribed euro equivalent).
• At least 25% of the nominal value of each share must be paid up, together with the whole of any share premium.
• A PLC must obtain a trading certificate before it can start business or exercise borrowing powers.

There is no requirement for a PLC to have two shareholders, so the £50,000 does not have to come from more than one source.

This list of additional requirements means many firms do not enter the market as a PLC. Instead, there may be a progression from being a standard private limited company to a public company as the business grows.

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

Limited liability partnerships (LLPs)

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

An LLP is a separate legal entity and provides its members with limited liability, but it does not have directors, shareholders or share capital.

An LLP must have at least two members. Members can be individuals or companies, and at least two must be designated members.

For tax purposes, individual LLP members are generally taxed on their share of the LLP’s profits rather than being taxed as company directors or employees. However, the salaried members rules can treat some LLP members as employees for tax purposes.

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 Regulator of Community Interest Companies.

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.
• Can be set up as limited by shares or limited by guarantee.
• Must pass a community interest test and include an asset lock to protect assets for community benefit.
• Profits can be reinvested in the business or used for its community purpose. Where dividends are paid to private investors, the CIC dividend-cap rules may apply.
• Still enjoys limited liability, subject to the normal exceptions which apply to limited companies.
• Must file an annual CIC report as well as meeting its normal Companies House filing obligations.

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

Read more in our guide to CICs.

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 can be financially responsible for the company’s debts. An unlimited company may or may not have share capital.

One reason sometimes given for using this structure is greater financial privacy. Many unlimited companies are exempt from filing accounts at Companies House, although this is subject to statutory conditions and exceptions.