Everyone can set up a company in the UK under certain legal conditions. The United Kingdom consists of four separate legal systems: Scotland, Northern Ireland, England, and Wales. These legal systems are similar in many ways. There are different legal requirements for the various company types in the UK. Let’s explore these company types.
What are the company types in the UK?
1. Public limited company (PLC)
Mostly abbreviated as ‘public company’ or PLC, a public limited company is a company type that can sell stocks or bonds to the public. For the most part, such companies start as private limited liability companies before their re-registration as PLCs to raise capital.
A business must have a share capital of £50,000 or more to become a public limited company. Plus, a minimum of 25% has to be paid in advance to start a business. Public limited companies are required to have at least two directors and a secretary as well.
All businesses listed on a stock exchange are PLCs. Yet, many private companies take advantage of the status and reliability that a PLC provides. Shareholders prefer to be involved as a PLC since they plan to list in the future or to have more financial support, appearing as a larger company. Being a shareholder in a PLC is generally seen as more prestigious than being a shareholder in a private limited company. The liability of the company is limited to the amount of its reserves.
2. Private limited company by guarantee
A private company limited by guarantee defines its guarantors’ liability through a pre-agreed amount in the case of the company’s liquidation. Non-profit organizations such as charities, clubs, student unions, associations, and social enterprises are common organizations that prefer this type to define a low amount limit that members (owners) have to pay if something goes wrong. There is no capital in a private company limited by guarantee. So, there is no shareholder. The company’s members are its guarantors.
3. Private limited company by shares
Having more than two million registered in Companies House, private companies limited by shares are the most favored type of company in the UK. They are commonly referred to as private limited liability companies. They have to include ‘limited’ or ‘ltd.’ at the end of their name. One of the main reasons behind its popularity is that the amount for which the shareholders will be liable in the case of liquidation is determined by the company’s reserves, like that of public limited liability companies.
On the contrary, an independent trader is personally liable for all debts related to their business. Their personal assets can be confiscated in return for their debts. No minimum capital is required for a private company limited by shares, unlike public limited companies. So, most are established with meager capital investment. Around 9 out of 10 private limited companies in the UK are small or medium-sized companies.
4. Limited liability partnership (LLP)
As an alternative corporate business entity, the limited liability partnership provides limited liability advantages and allows its members the flexibility to regulate their internal organizations as a traditional partnership. Large law firms and accounting companies prefer this legal entity to benefit from both the partnership tax advantages and, needless to say, the limited liability of a company.
5. Private unlimited company
There are not many private unlimited company types compared to other types. There is no upper limit to the amount that the members have to pay when the company is liquidated. So, companies with a very low risk of bankruptcy generally prefer this type.
Another important detail for private companies is that it is not legally mandatory to open an annual account at Companies House. Because of this, unlimited companies are appealing to businesses that want to remain confidential about their financial situation.
Reasons to start a company in the UK
Considered one of the international trade centers, London has always been in the foreground as the center where many foreign companies carry out their activities in Europe. There are many reasons for foreign companies to regard the UK as an important business center. The most significant is that starting a business is much faster and easier compared to other countries. You can learn more via our blog post, “The benefits of setting up a business in the UK.”
Requirements for establishing a limited liability company in the UK
- Company name: You must be sure that the company name you intend to use is available and different from an existing company name. No sensitive words are allowed either.
- Director: Only one director’s information is required for company establishment. There is no limit to the number of directors. Anyone over 16, having not gone bankrupt or been banned from being a company director, can be a company director.
- Shareholder: Only one shareholder is required. There is no limit to the number of shareholders you can assign. This can be an individual or a corporate organization, but also a director. You will have to allocate a certain number of shares to each shareholder while registering the company.
- Registered address: This address has to be located in the UK. It will appear in the public register. All legal mail from Companies House and HMRC (Her Majesty’s Revenue and Customs) will be sent to the registered office address. You can also take advantage of the legal address service if you set up your company via Workhy in the UK.
- Filing, reporting, and taxes: Companies are legally required to submit annual accountings and a Statement of Approval each year. You can contact our professional team if you need any help.
Opening a branch office in the UK
Foreign companies opening branch offices in the UK are generally mandated to submit fewer reports than foreign limited companies established here. These companies are subject to fewer legal procedures. The foreign company has to submit its annual accounting to Companies House with the UK branch office’s yearly accounting. This information in Companies House is open to public access.
Another significant point is that opening a branch office in the UK does not constitute a limited legal liability right to branch offices as in the case of limited companies. So, the branch office owner in the UK can be accountable for the branch office debts in the UK. Moreover, the confiscation of branch property can come into question in accordance with court decisions against the foreign company. Company owners who perceive this as a drawback prefer to start a separate limited company rather than opening a branch office.
When the foreign company’s branch office in the UK is registered as a permanent establishment, they must pay corporation tax on the branch income. You can develop a kind of strategy against taxation. For instance, a foreign company can start its activities in the UK through a branch office, and it may lose money in the meantime. When the company begins to make a profit, if the corporation tax to be paid in the UK is lower than the corporation tax to be paid in the country of origin, it is possible to register it as a separate company. Evaluating each situation is of great importance in its own circumstances.