Want to know how to structure your company? Not sure if it should be public or private? Limited or unlimited? Read on to find out which structure is the right choice for you and your business.
This is the second of four articles in our "How to Start a Company" series.
Your new company can take a number of forms and we have briefly explained below the main options that are available to you. For a more in-depth explanation of your options, please get in touch.
Public or private?
Your company can be either public or private. Private companies will be the solution for the majority of businesses, especially those that are just starting out.
Private companies cannot offer their shares to the general public. This means that they cannot raise capital as easily as public companies who can apply for listing on a stock market.
However, private companies are less regulated than public companies. For example, before public companies can trade or do business, they must have a trading certificate. To obtain one, they must issue a share capital of at least £50,000, of which 25% must be paid up in full before they start trading.
Public companies are also subject to the Takeover Code and face greater restrictions on the payment of dividends and return of capital to their shareholders.
It is very unusual for new businesses to be incorporated as public companies unless they are going to receive substantial investments from the outset. Most start-ups begin as private companies and, when their business has matured enough for a public listing to be attractive to investors, they can then “go public” by re-registering as a public company.
Limited or unlimited?
Your company may be either limited or unlimited. Limited companies limit the amount of liability of their owners for the debts of the company. Unlimited companies, on the other hand, do not have any limit on the liability of their owners. They are very rare in practice and are generally used for companies that do not wish to publish their accounts.
If the company is limited by shares, which is by far the most common form of a limited company in the UK, the owners ("shareholders") are required to pay the company for the shares they hold. Once the shareholders have paid for their shares, they have no further liability to the company. They will not be required to sell their personal assets to pay off the company’s debts even if the company is wound up (unless fraud has occurred).
If the company is limited by guarantee, it has no share capital. This form of company is usually only used for non-profit organisations that have no need for their owners ("guarantors") to contribute large amounts of money to run the company, such as charities and sports clubs. In the event that the company is wound up, the guarantors are required to pay a specified sum (a "guarantee") to the company’s creditors, which is typically £1. The guarantors’ liability is then limited to that sum.
If you need assistance with setting up your new business and/or registering a new company, a member of our corporate team would be happy to help. Please do not hesitate to contact our Head of Corporate, Iwan Emanuel, on 01494 893570 or at email@example.com
The next article in this series will explain the alternative corporate structures available for charities and other charitable businesses.