Last updated Jul 23, 2024 and written by David Daly

UK limited company formation; The different company structures

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Starting a limited company is one of the most popular ways for entrepreneurs to go into business in the UK. But did you know that there’s multiple ways to structure a limited company? These different structures suit different types of businesses, what’s suitable for one business may be inappropriate for another. 

Let’s take a look at the three most popular types of limited company:

Limited by Shares

The most common of the company structures. Some reasons for this are:

  • Limited by shares companies give more protection to their owners in case the business doesn’t succeed. This is because, if the company were to fail, shareholders (the owners) only have to pay for unpaid shares, which means their liability is ‘limited’.
  • A limited by shares company must have one director and one shareholder (one person can act as both director and shareholder).
  • Shareholders can sell shares at any time to raise capital.
  • The business name is protected by law and cannot be taken by anybody else (the same applies for limited by guarantee and limited liability partnerships).
  • Profits can be distributed by way of dividends, this ensures a tax effective structure.

Limited by Guarantee

This structure shares a number of features with the limited by shares company (limited liability for example). However, a limited by guarantee company also has some fundamental differences:

  • Limited by guarantee is a structure that is geared towards non-profit companies (the structure usually enables companies to become charities).
  • There must be at least one director. However, instead of shareholders there are members who act as guarantors. Again, this company type can be formed with just one person.
  • Profits are generally not distributed amongst guarantors and profits are usually reinvested into the non-profit activities of the company.
  • The limited by guarantee structure is popular with sports clubs and cooperatives; organisations that serve the needs of communities.

Limited Liability Partnership (LLP)

This company type may include the word limited but that’s where similarities with the other two structures end:

  • An LLP is a partnership and this is reflected in the way it is taxed. For example, an LLP does not pay Corporation Tax and is instead taxed through Self Assessment.
  • It must be run with a minimum of two designated members, there are no shareholders, shares or directors in an LLP.
  • An LLP agreement is written up, this would stipulate how liable each member is for the company and how the company is managed.
  • LLPs cannot sell shares or receive capital in exchange for a percentage of their company to someone who is not a member of the LLP.

Are you ready to start your own company? Regardless of which of these structures is best for you, we can help. Take a look at  Company Formation MadeSimple to start your business adventure today.