Types of Companies under the Companies Act UK

Legislation governing Companies

The internal governance procedures and management, rights of shareholders and duties and responsibilities of company officers are governed by the Companies Act 1985.

Registering a Company

To register a company, the required documents must be filed and certain conditions imposed by the Registrar of Companies satisfied. A certificate of incorporation will then be issued and the company brought into existence. A company’s first shareholders are ‘subscribers’ and can be natural persons or another company.

Incorporation Documents

The documents which must be filed include, importantly, the memorandum of association and the articles of association. The memorandum lists the company name, its objects, the country of its registered office, the liability of its shareholders and the share capital. The articles lists the company regulations and rules for the internal administration.

After the certificate of incorporation is issued, the company is considered as registered and can commence trading. A public limited company must meet specific capital requirements before it can commence business.

Private limited company requires only one member, whereas a public limited company requires a minimum of two.

Classification of Companies

The Companies Act broadly categorises companies as either public or private companies. There are three categories of liability of the company shareholders: CA 1985, s 1(2), which refer to their liability for the company’s debts if or when it enters liquidation:

Shareholders' liability for companies limited by shares is limited to any amount still owing to the company for their shares. This is referred to as 'limited liability' and is the most popular form of company, as the directors and shareholders do not become personally liable for the dents and conduct of the company, except in special circumstances.

For companies limited by guarantee, member’s liability is limited to their undertaking to pay certain sums on its winding up, and unlimited companies offer no protection to shareholders for company debts.

Moving on from these basic models for shareholders' liability, the Companies Act permits incorporation of private companies limited by shares; public companies limited by shares; private companies limited by guarantee and private unlimited companies.

Private Companies

Private companies is defined by reference to public limited companies. All companies that are not public companies are private companies. A private company is not permitted to offer its shares to the public. Due to the capitalisation requirements, the vehicle tends to be used for smaller businesses.

Where a private company is limited by its shares, shareholders are liable to contribute to the assets any unpaid amount on shares issued to that shareholder. The nominal value of the shares, including premiums payable on subscription, determines the amount which is payable. The memorandum of association has to be generally in the ‘form’ prescribed by the Secretary of State; a model form of memorandum is found in Table B of the Act.

Where a private company is limited by guarantee, shareholders will be liable to contribute to the assets of the company the amount required for payment of the company’s debts and costs of winding up, up to the maximum set out in the memorandum. This is usually £1. The appropriate model form of memorandum and articles is contained in Tables C (for a company with a share capital) and D (for a company without a share capital).

Public Companies

A public company must be limited by shares; the memorandum must explicitly state that it is a public company. The model form of memorandum are contained in Table F. The name must end with “public limited company” or the abbreviation "PLC". The share capital must not be less than £50,000. At least one-quarter of each share’s nominal value and the whole of any premium on it must be paid before it can be allotted. If there is less than two shareholders of the company for more than six months, the single member will be jointly and severally liable with the company for its debts, thus limited liability protection will be lost, as the company does not satisfy the requirements of the Act. As with private companies, the Table A Articles will be apply where the articles of association are not registered, or do not exclude or modify Table A. The Stock Exchange may deal with the shares of a public company, or the Alternative Investment Market. Such companies are described as ‘publicly quoted’, ‘publicly traded’ or ‘listed companies’.

Unlimited Companies

A member of such a company has no limit on their liability for a company’s debts and obligations if it becomes insolvent. Shareholders may not be sued by creditors, who must petition for the winding up of the company. Any share capital must be stated in the articles of association. The model form of memorandum and articles is contained in Table E.

Overseas Companies

This is where the company has been incorporated elsewhere than in Great Britain, though has an established business in Great Britain . The provision contained in the Act, includes those concerning their constitution and officers and an address for service within the jurisdiction, the preparation and delivery of accounts, and the registration of charges over property.

The formation of a company for most trading enterprises means forming a company limited by shares.

Selection of Type of Company

The reasons for selecting to incorporate as a private company limited by guarantee may be counter-intuitive. These types of companies are of particular interest to charities, as it brings with it corporate status and dispenses with the complexity of share purchases in the event that an individual wishes to become a shareholder. Financial Assistance provisions of the Companies Act also will not apply.

People trading with others as a partnership may wish to adopt the corporate status of a company, and for commercial reasons leave unlimited liability in place and incorporate as an unlimited liability company, although such a practise in most cases may be contrary to sound legal advice.