Forms of companies in the UK

If a separate entity is set up in the UK, it is usually a company. Four main types of company exist in the UK and their key features are:

• a private company limited by shares: the members' liability is limited to the amount, if any, unpaid on the shares held by them (Private Company). As stated above, the Private Company is the most common form of company;
• a private company limited by guarantee: the company does not have a share capital. Instead the members' liability is limited to the amount that they have agreed to contribute to the company's assets if the company is wound up;
• a private unlimited company there is no limit to the members' liability (this form is very rare);
• a public limited company the members' liability is limited to the amount, if any, unpaid on the shares held by them ("Public Company"). Only a Public Company can offer its shares to the general public. This is the second most common form of company.

Private companies and public companies compared

The folowing features are common to both Private Companies and Public Companies:

• To form a company it is necessary to have a memorandum of association setting out the subscribers who wish to form a company and the number of shares they have agreed to take. Articles of association are also required and set out the rules governing the management of the company (including any restrictions on the company's objects). Forming a company typically takes three to five days.
• There are no residency or nationality requirements for directors of UK companies. Companies have a separate legal personality. The directors are not generally liable for the acts of a company unless they have given a personal guarantee, act whilst disqualified as directors, fail to properly protect creditors' interests when the company is in financial difficulty or act in breach of duty or beyond their personal authority.
• Directors are required to act in good faith and in the best interests of the company. It is possible for companies to obtain insurance, or indemnify the directors, to protect the directors against claims made against them in their position as a director. Any such indemnity or insurance cannot protect the director against liability:
  • owed to the company or an associated company; or
  • to pay a criminal fine or regulatory penalty;
• Certain decisions are required to be approved by shareholders, where different levels of consent are required depending on the nature of the resolution (a simple majority for "ordinary resolutions" and 75% for "special resolutions"). Written ordinary resolutions and written special resolutions can be used instead of holding a shareholders' meeting, although procedural criteria covering the circulation and timing of the resolutions must be met for both written resolutions and resolutions at shareholders' meetings.