F1 1.02 Types of companies

Types of company in the UK

There are four types of company in the UK.

1. Private companies limited by shares
2. Public limited companies
3. Private companies limited by guarantee
4. Private unlimited companies

Private companies limited by shares

This type of company has share capital and has limited liability status. This means that if the company could not pay its debts, its shareholders would not have to contribute any money to pay those company debts so long as they had paid the company for any shares that the company had issued to them.

These types of companies are commonly used by businesses of all sizes.

Public limited companies

This type of company also has share capital and has limited liability status. Unlike a private company limited by shares, a public limited company is able to offer its shares to the general public and may be listed on a stock market or exchange. A public liability company has greater administration requirements than other types of company and as a consequence these types of companies are most appropriate for large and very large businesses.

Private companies limited by guarantee

This type of company does not have share capital but still has limited liability status. The company has members who guarantee that if the company runs into financial trouble they will pay a certain amount of money to the company to help its liabilities to be paid. The guarantors’ liability is limited to the value of the guarantee. So for example, a company might have a single member who guarantees to pay, say, £1,000 should the company require it, but would not have to pay any more than this.

Private companies limited by guarantee are usually used by non-profit making organisations.

Private unlimited companies

This type of company may or may not have share capital but it does not have limited liability status. As a result, if the company is unable to pay its liabilities, its lenders and creditors can seek full payment of any shortfall from the company’s members/shareholders. Another consequence of not having limited liability status is that most unlimited companies are not required to file financial statements with Companies House.

Unlimited companies are very rare as most shareholders or members place a high value on limited liability status.

Names of companies

Private companies limited either by shares or guarantee include the word “limited” or its abbreviation “ltd” at the end of their names. Public limited companies include the initials “plc” at the end of their names.

Private / Public companies

The main difference between private and public companies is that a private company cannot offer its shares to the general public. Public companies are able to do so, and you might have seen adverts in the financial pages of newspapers inviting the public to request a prospectus for a public limited company’s forthcoming share issue.

The effect of this difference is that it is often easier to raise large amounts of money from investors using a public rather than private company. If the public company is also listed on a stock exchange (e.g. the London Stock Exchange) it makes it much easier, quicker and cheaper for investors to buy or sell shares in that company.