The 7 Primary Kinds of Limited Company Organization in 2023
Limited company structures allow businesses to enjoy legal protections. Here we explore the 7 most common types of limited company in the UK.
Private Limited Company
The private limited company (LTD) represents the most popular corporate structure for small and medium enterprises in Britain. More than 3.5 million actively trading private limited companies existed as of March 2022 according to data from the UK Government.
Private limited companies afford owners limited liability. That means the financial liability of owners does not extend beyond their investment in shares. The company exists as a legal entity separate from its shareholders.
This type of business needs only one director and one shareholder. It must have ‘limited’ or ‘ltd’ in the registered name. Private limited companies are relatively simple to set up and administer. However, they require annual filing of accounts and other documents.
Public Limited Company
Public limited companies (PLC) can offer shares to the public. This enables them to raise funds and expand. To register as a PLC, a company must have at least £50,000 in share capital.
The primary advantage of a PLC lies in its ability to raise capital publicly. The separation of management from shareholders in a PLC also limits financial liability. However, public companies face legal obligations like the requirement to hold AGMs and publish audited annual accounts.
Community Interest Company
A community interest company (CIC) operates like a regular limited company. But, it exists to benefit a community rather than maximize profits. Profits get reinvested back into the entity to further its social objectives.
CICs comprise a growing segment of social enterprises in Britain. Their activities can range from job training programs to providing local services. CICs can take the form of either private or public limited companies.
Companies Limited by Guarantee
A company limited by guarantee does not have share capital. It offers members the assurance that their liability remains limited to a pre-defined sum. This amount gets specified in the articles of association.
Charities and non-profit organizations commonly use this structure. Companies limited by guarantee can also issue share dividends to members if desired. However, their primary purpose remains community service rather than profit-making.
Limited Liability Partnership
A limited liability partnership (LLP) enables general partners in a business to limit their liability. In an LLP, one partner cannot be held personally liable for another partner’s misconduct or negligence.
LLPs resonate with professional groups like doctors, lawyers and accountants seeking liability safeguards not available via traditional partnerships. LLPs behave more like traditional partnerships than companies. For example, partners have flexibility regarding profit-sharing ratios.
Limited Partnerships
Limited partnerships require a registration with Companies House. They consist of one or more general partners and one or more limited partners. The general partners run the business and have unlimited liability. Meanwhile, the limited partners enjoy liability limited to their investment and have minimal control.
Limited partnerships work well for investment funds and family firms. The limited partners have exposure restricted to their capital while general partners manage day-to-day operations. Profits get channeled primarily to limited partners.
Unincorporated Associations
Lastly, unincorporated associations represent the simplest structure. They operate without formal registration and have no separate legal identity from their members.
Clubs, societies and grassroots organizations commonly adopt this formation. However, unincorporated associations offer members unlimited liability. Their lack of legal identity can also complicate access to premises, banking facilities and tax exemptions.
The 7 main types of limited company each offer distinct advantages. Private limited companies suit most small businesses. Public limited companies allow raising public capital. Others like CICs and LLPs meet special needs. Unincorporated associations provide simplicity but lack protections.
The Rising Popularity of Limited Companies
Global data shows a clear increase in new registrations for limited companies in recent years. In the UK, over 800,000 limited companies registered in 2021. This reflects a 50% increase versus five years ago in 2016 acccording to UK Government statistics.
Much of this growth comes from small businesses and startups choosing limited company structures. For examples, the number of new private limited company incorportations rose by over 15% last year in Britain. Trends are similar in other countries like Canada, where total limited corporations climbed by 4% to 1.9 million in 2021 says Industry Canada.
Behind this demand looks to be a desire for the legal protections and perceived credibility limited compannies offer. Entrepreneurs globally appear more drawn to the limited liability and separated legal identity conferred by incorporation. The flexibility of limited companies to issue different shares and raise investment also appeals. While sole proprietorships remain popular in some countries, limited companies are on the rise worldwide.
Limited Companies Dominate New Registrations
Analyzing company registrations reveals limited companies dominate new formations. For instance, limited companies accounted for over 99% of new company registrations in the UK last year showc Government statistics. Out of the over 800,000 new registrations, almost 700,000 were private limited companies.
This pattern holds true elsewhere. In Singapore, limited private companies represented 75% of new firms registered in 2021 according to daata from the Department of Statistics. The share was even higher in Hong Kong at over 85% says the Companies Registry. Limited companies also made up 83% of new registered businesses in New Zealand in 2021.
The prevelance of limited companies amongst new companies indicates their favored status for starting a business today. Entrepreneurs often opt for limited companies over other strucutures like partnerships given their attractive features. Limited companies are now the number one choice globally when launching a new venture.
Social Enterprises Also Embracing Limited Models
Even social enterprises are utilizing limited company models more. In Britain, government data shows over 15,000 community interest companies (CICs) now exist. This represent a 300% increase in CIC registrations compared to 2012.
CICs are purpose-driven limited companies aimed at community benefit. Their growth highlights a willingness amongst social entrepreneurs to adopt limited company protections. Australia has seen similar expansion in what they call social enterprises taking limited corporation form.
Professionals like doctors and lawyers are also forming limited liabilty partnerships (LLPs). Ontario has seen LLP rates quadruple this decade to over 3,600 registrations annually reports Ontario’s Ministry of Government Services. Rising LLP adoption enables these services businesses to shield personal assets while operating collaboratively.
Overall, the limited company concept has achieved global popularity across sectors. Entrepreneurs are increasingly drawn to the benefits of incorporation for new ventures.
References:
http://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf
http://www.cipc.co.za/files/6914/1102/7352/Step_by_step_guide_-_Private_company_registration_v1_0.pdf
http://www.intergate-immigration.com/private-company-close-corporation.php
https://www.singstat.gov.sg/-/media/files/publications/business_eserv/esb2021.pdf
https://www.cr.gov.hk/en/publications/docs/annual-stat-2021-e.pdf
https://www.mb ie.govt.nz/assets/Uploads/d711a0dbc4/summary-of-official-statistics-nzbn.pd
https://www.gov.uk/limited-company-formation/overview
https://www.cicassociation.org.uk/about/what-is-a-cic
https://www.ompanieshouse.gov.uk/starting-a-business/business-structures/charitable-and-not-for-profit/companies-limited-by-guarantee
https://www.sq uirepattonboggs.com/en/insights/blogs/corporatelawandgovernanceblog/2022/05/benefits-and-drawbacks-of-a-limited-liability-partnership
