Choosing the Right Business Structure

You’ve decided that you want to start your own business. Now it’s time to pick the business structure that’s right for you.

The UK offers a number of different business structures, with the most popular being:

• limited companies
• sole traders

Here we’re going to concentrate on the limited company and look at the different options available to you if you decide it’s the structure that suits you and your business best.

What is a limited company?

A limited company is a separate legal entity to its management (known as directors) and shareholders (owners). This means that the individual/s in the company have limited liability if the company were to run into financial difficulties or be sued (sole traders are wholly liable). As long as no wrongdoing has been done on their part - the amount the directors and shareholders are liable for is limited to the amount that they have invested. Personal assets such as property are not at risk.

As well as limited liability, a limited company has a number of advantages when compared to a sole trader. This includes tax efficiency, simple company setup and brand protection.

Read more about the advantages and disadvantages of a limited company in this dedicated article.

The different types of limited company

• Private company limited by shares (the most common legal structure)
• Private company limited by guarantee
• Public limited company
• Limited liability partnership

Private limited company definitions

Private company limited by shares

• A separate legal entity to the people who run and own the company
• The company has shares that are held by shareholders
• Personal and company finances are separate, owners are protected financially as their liability is limited
• Profits can be kept once tax has been paid making it the most popular choice for UK business owners
• Requires just one person to set up and run

Register a limited by shares company now

Private company limited by guarantee

• A separate legal entity to the people who run and own the company
• The company does not have shares, instead it has guarantors and a guaranteed amount
• Personal and company finances are separate, owners are protected financially as their liability is limited
• Profits should be reinvested into running the business - this is why it is popular with charities and other not-for-profit organisations
• Requires just one person to set up and run

Register a limited by guarantee company now

Public limited company

• A separate legal entity to the people who run and own the company
• The company has shares that are held by shareholders
• Personal and company finances are separate, owners are protected financially as their liability is limited
• Similar to a private company limited by shares with the major difference being that shares can be made available to the public via the stock exchange (this element adds a number of extra legal requirements)
• Dividend payouts to shareholders are generally determined by the board of directors
• Requires a minimum of two people to set up and run

Limited liability partnership

• A separate legal entity to the people who run and own the company
• The company does not have shares, instead it has partners (also known as members) who are equally liable
• Personal and company finances are separate, owners are protected financially as their liability is limited
• Profits can be kept once tax has been paid
• Requires a minimum of two people to set up and run

Register a limited liability partnership company now

What does Ltd mean?

Ltd is an abbreviation of ‘Limited’. When you register a limited company you can choose whether Ltd or Limited appears after the company name on the certificate of incorporation. The words are interchangeable so a company can opt to use either suffix post-formation, regardless of what is on the certificate. Limited liability partnerships use the LLP suffix and public limited companies use the PLC suffix.

How to set up a limited company

Different limited company types require different information for the company setup. As a general rule you will need a unique company name (we offer a free company name check), a registered office address and personal information for each individual in the company (including proof of ID and address documentation).

Companies can be formed directly with Companies House (the UK registrar of companies) or through an accredited company formation agent, such as ourselves. A company formation agent can offer a number of services that Companies House can not, including:

A registered office service to protect your home address from being listed on the public registerAn introduction to a business bank account provider (normally with a cash back reward) as well as other appropriate partners such a business loan providers and accountantsAssistance with company filing obligations such as annual accounts and the confirmation statement

How long does it take to register a limited company?

Once the company information has been provided a company can be formed online in as little as three working hours.

How much does it cost to set up a limited company?

Companies Made Simple offer a number of different company formation UK packages, with prices starting at £14.99 plus VAT and going up to £99.99 plus VAT. Click the below links to find out more.

• Private company limited by shares
• Private company limited by guarantee
• Limited liability partnership