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What types of company are there and what do they mean?
Most people will have some awareness that there is a difference between being in business as a sole trader and operating via a Limited company, but the latter isn’t the only way to incorporate and there are a number of different types of company, which may be suitable depending on the nature of the organisation they’re formed to register, which largely differs due to whether or not they’re expected to make a profit, who’s liable for their debts and who gets any profit made. In the case of company insolvency, there are also distinctions between these types of company.
The different types of company
- Limited Company – The type of company most people are familiar with, but within this category, there are companies limited by shares and companies limited by guarantee. In either case the liability that’s limited relates to who pays what when things go wrong. In the case of companies limited by shares, the shareholders liability to company debt is limited by their investments. Should the company be liquidated, they stand to lose a maximum of the value own in shares and no more. in the case of companies limited by guarantee, members (not shareholders) agree in advance what they will contribute to the winding up (the guarantee) and their liability to company debt is limited to that amount.
- Public Limited Company – To be a PLC, the company must issue shares which can be bought by any member of the public who wished to do so. The value of these shares must be at least £50,000. As with the other types of limited company, the ‘limited’ part of the title relates to the extent the company owners will be liable should the company be liquidated. The limit in this case, usually being equal to the amount any individual invested.
- Limited Liability Partnership – LLP’s are a relatively new way to create an incorporated entity and while they are a formally registered company, they fall somewhere in between a more traditional unincorporated partnership and a limited company. In a normal partnership, like sole traders, the partnership and the partners are legally indistinguishable, but with an LLP, the partners liability is limited to their own debts, negligence or misdeeds, the innocent partner is not.
- Unlimited Companies – For most, this will be an unfamilar company type and seeing ‘Unltd’ after the name of a business might arouse some curiosity. For the purposes of day to day running, an unlimited company operated the same was as one Limited by shares, however, the fundamental difference is the extent to which the shareholders are liable in the event of the company being liquidated. As the name suggests, the shareholders liability to company debt is not limited at all and they are collectively responsible for every penny of it. There are advantages to this type of company, the main one being that of privacy, as accounts or dividends paid do not have to be declared publicly in the same way other company types are required to.
- Community Interest Companies – While the above company types are expected to make a profit for distribution to members or shareholders, community interest companies are more altruistic in nature and any profits made will be either be used for the benefit of the surrounding community or invested back into the business in order to better serve that community. Such companies, are easier to set up and running them is far more simple than other company types.
- Industrial & Provident Society – In many ways, the predecessor of community interest companies and also sometimes referred to as Cooperatives or Community Benefit Societies. Cooperatives were run for the benefit of the members which made use of its services, whereas community benfit societies were run for the benefit of the community at large. The more modern CIC combines both of these elements into a single type of incorporated body, so the number of these older entities are in decline.
- Royal Charter – A throwback to the days when all companies required their formation to be approved by the reigning Monarch. Still a most prestigious way for an organisation to obtain a legal personality. Few and far between, the details of the charters are individual and unique to each body created in this way.
Do all types of company follow the same insolvency processes?
In a word, no. While the most familiar types of insolvency procedures are applicable to more than one of the types of company shown above, there are others which cannot make use of certain processes, or have rules of their own.
If you’re worried about the insolvency of any of these types of company, why not contact us – we offer a free consultation as to the best way forward in each circumstance. While information on some of the less common types of companies is scant, we’re the experts when it come to dealing with insolvency and we’re well able to give you the best advice.
Speak to us, we can help.