Limited companies are attractive options because your personal liability is limited by law, removing some of the risk should the business fail. Depending on the size and scope of your firm you may wish to set up a private or public limited company.

Limited companies are attractive options because your personal liability is limited by law, removing some of the risk should the business fail. Depending on the size and scope of your firm you may wish to set up a private or public limited company.

General overview

Limited companies are incorporated entities, which means the company has an official legal identity and can own assets – and take legal action – on its own behalf. In most cases limited companies are split into shares, which are equal parts of the company bought and owned by shareholders. Limited companies can therefore be owned by either a small or large amount of people. Owners do not have full liability for the company’s debts due to the separate legal status.

 

Choosing a name

Because limited companies are incorporated you can’t use a name that’s already registered. Business names should be as unique as possible to avoid confusion with other firms that already exist. You should avoid using names that may mislead others as to the nature of your business or cause offense. In addition, certain words require approval, such as those that indicate connection with an official legal entity of the United Kingdom (for example a government department).

 

Private limited company (shares)

Private companies limited by share ownership are the most common form of private limited company. Each member’s liability for company debts can’t exceed the amount unpaid on their shares. This form of company is particularly popular because it allows companies to expand by selling shares whilst retaining limited liability for its shareholders.

 

Private limited company (guarantee)

Although most private limited companies will be owned by shareholders, there is the option to have members act as guarantors rather than shareholders. Each member guarantees a certain figure to be personally contributed to the company’s assets should the business fail. This type of company is less common in the private sector but is popular with charities and social enterprises who require limited liability for those in operational control, such as directors or trustees.

 

Private unlimited company

Private unlimited companies are very rare; owners have unlimited liability for company debts which makes them risky enterprises. Some private unlimited companies offer share capital but many do not, especially if there are relatively few directors.

 

Public limited company

Public limited companies tend to be large, well known enterprises that operate either nationally or internationally. Liability for each member is limited to the amount unpaid on shares. Unlike private companies, public limited companies can issue shares on the stock market to raise equity and must have two directors and a qualified company secretary. They must also have share capital worth at least £50,000 or equivalent.