Types of Company

In the UK, businesses can be structured in several ways, each with different legal, financial, and administrative implications. Here are the main types:

Sole Trader

Description: This is the simplest business structure, where the individual owns and runs the business personally. There’s no legal distinction between the owner and the business.

Liability: Unlimited liability – the owner is personally responsible for all business debts, meaning personal assets can be at risk.

Taxation: The owner pays Income Tax and National Insurance through Self Assessment on business profits.

Administration: Easy to set up with minimal regulations. Requires registration with HMRC for Self Assessment.

Partnership

Description: Two or more individuals share ownership and responsibility for running a business.

Liability: Generally, unlimited liability for all partners for the partnership’s debts, though this can be mitigated by a partnership agreement. Each partner is personally liable for their own misconduct and for the collective debts.

Taxation: Each partner registers as self-employed and pays Income Tax and National Insurance on their share of the profits.

Administration: Requires a partnership agreement outlining responsibilities, profit sharing, and liabilities. Registration with HMRC is necessary.

Limited Company (LTD)

Description: A separate legal entity from its owners (shareholders) and managers (directors). This is the most common company type in the UK.

Liability: Limited liability – the shareholders’ liability is limited to the amount they invested in the company (the value of their shares). Personal assets are generally protected.

Taxation: The company pays Corporation Tax on its profits. Directors’ salaries and dividends to shareholders are subject to personal income tax.

Administration: More complex to set up and maintain, requiring registration with Companies House, filing annual accounts, and a company tax return. Publicly available information.

There are two main types of limited companies

Private Company Limited by Shares: The most common type, where ownership is divided into shares, and liability is limited to the value of those shares. Shares are not offered to the general public.

Private Company Limited by Guarantee: Does not have shareholders. Instead, it has “guarantors” who agree to contribute a nominal sum (e.g., £1) if the company is wound up. This structure is typically used by non-profit organizations, charities, and clubs, where profits are reinvested.

Public Limited Company (PLC)

Description: A company whose shares can be offered for sale to the general public, usually through a stock exchange.

Liability: Limited liability for shareholders, similar to a private limited company.

Taxation: Pays Corporation Tax on profits.

Administration: Subject to much stricter regulatory requirements and disclosure obligations than private companies. Must have a minimum share capital of £50,000 (at least 25% paid up before trading begins) and typically requires at least two directors and a company secretary. Suitable for large, growth-oriented businesses looking to raise significant capital.

Limited Liability Partnership (LLP)

Description: A hybrid structure that combines the flexibility of a partnership with the limited liability of a company. It’s a separate legal entity.

Liability: Partners (members) have limited liability, meaning they are only responsible for their own misconduct or negligence, and their liability for business debts is limited to their investment.

Taxation: Unlike limited companies, the LLP itself doesn’t pay Corporation Tax. Instead, profits are distributed to the members, who then pay Income Tax through Self Assessment.

Administration: Must be registered with Companies House and file annual accounts. Popular among professional services firms (e.g., lawyers, accountants).

Unlimited Company (UNLTD)

Description: A less common type of company where there is no formal limit on the financial liability of its shareholders if the company goes into liquidation.

Liability: Unlimited liability for shareholders – they are fully responsible for settling all outstanding financial liabilities in the event of liquidation, regardless of their initial investment.

Taxation: Similar to limited companies, they pay Corporation Tax.

Administration: Not required to file annual accounts with Companies House unless they are a parent or subsidiary of a limited liability undertaking, offering more financial privacy.

Community Interest Company (CIC)

Description: A special type of limited company (either by shares or guarantee) designed for social enterprises that want to use their profits and assets for the public good.

Purpose: Exists to benefit a community or specific section of a community, rather than private shareholders or members.

Regulation: Subject to dual regulation by the Regulator of Community Interest Companies and Companies House. Must provide an annual community interest company report.

Other less common or specialized structures exist, such as Industrial and Provident Societies (IPS) and Royal Charter (RC) companies, but the types listed above are the most prevalent in the UK.