Company law

Different Types of Companies

Private Limited Company

Most companies which are not public companies (see below) will almost certainly be private limited companies. As well as giving the business a trusted and recognised status, private limited companies have numerous other benefits; they are flexible and can be tailored to suit the needs of the business.

There are however restrictions to what a private limited company can do. For example, it cannot offer shares to the public which means that it will have fewer shareholders than a public company and there will usually be a restriction placed on them when it comes to transferring shares (usually requiring any transfer to be approved by the board of directors allowing them to maintain or have a say over the control of the company). Larger companies may allow shares to be transferred provided they are offered to existing shareholders first.

Public Limited Company

Public limited companies can offer shares to the public however the rules that govern public limited companies are more restrictive and there are more formalities, rules and requirements in relation to their day to day running such as:

  • The name of the company ends with the words: (i) public limited company; or (ii) PLC; or (iii) plc; or (iii) Plc
  • The company must have an issued share capital with a nominal value of at least £50,000 and a paid up share capital of at least £12,500
  • Restrictions on loans to directors (even group companies where one is a public company)
  • It can buy (and sell) its own shares if it pays for them with profits that dividends can be paid from (whereas a private company can supplement share purchases using capital).
  • It is a criminal offence for a public company to give financial assistance to a third party in order to purchase shares / a stake in the company
  • The preparation of accounts which have to be filed at Companies House and to pay the associated costs
  • There must be yearly AGMs and a company secretary

Listed Companies

Listed companies have additional statutory and regulatory requirements. Their shares are admitted to the Official List of the UK Listing Authority and are traded or quoted in places such as the London Stock Exchange, the Alternative Investment Market (AIM) or PLUS.

Holding Companies and Subsidiaries

If Company A holds more than 50% of the shares in Company B then Company A is going to be a holding company and Company B the subsidiary. This means that Company A will have a majority of the voting rights in B including the right to appoint and remove directors. If Company C is a subsidiary of Company B then it will also be the subsidiary of Company A. If Company B has no other shareholders than Company A (or one of its subsidiaries) then it will be referred to as “a wholly owned subsidiary” of Company A. Shares held in trust do not count and subsidiaries cannot hold shares in its holding company.

Whether a company with more than one trading activity chooses to trade under the umbrella of one company or a number of subsidiaries will depend on its attitude to the following (aside from the benefits of limited liability):

  • Tax – there are numerous advantages (and disadvantages) from putting separate activities into subsidiary companies and carrying out transactions between them (depending on the relationship with the other companies).
  • Administration – the more subsidiaries a holding company has the greater the administrative burden and cost.
  • Complexity – group companies have distinct legal entities, rights and obligations and these boundaries have to be respected.

Companies Limited by Guarantee

Companies limited by guarantee are usually (but not always) charities. Companies limited by guarantee will have guarantors who are members and have agreed to make a contribution towards the payment of the company’s debts if it is wound up without sufficient assets to pay off debtors (usually fixed at a nominal £1). A guarantee company that exists for charitable purposes can drop the word “limited” from its name and cannot pay dividends to its members. Upon being wound up any surplus equity must go to a body with a similar purpose.

Unlimited Companies

The liability of members in unlimited companies is, as the name suggests, unlimited. This means that members may have to pay off all the company’s debts if it is wound up. However, there is no obligation to file accounts at Companies House.

Limited Liability Partnerships (LLPs)

An LLP has the tax benefits of a partnership and the limited liability of a company which is why it is preferred by law firms and accountancy firms. It is governed by statute and is required to file annual accounts at Companies House.