Types of limited company
There are 2 types of limited company:
- limited by shares
- limited by guarantee
The type you choose will depend on your company’s ownership structure and whether it intends to make a profit or not.
Limited by shares
Most companies are ‘limited by shares’. This means the company:
- raises investment by selling shares in the company
- is owned by shareholders who have bought shares and have certain rights
- pays shareholders profits from the company through dividends
- may need its shareholders to vote and agree on changes to the company
A shareholder’s liability is limited to the amount they originally invested into the business.
A company can have one shareholder who owns the whole company and acts as its only director.
Limited by guarantee
Usually companies limited by guarantee are ‘non-profit’ or registered as a charity.
Companies limited by guarantee have guarantors and a ‘guaranteed amount’ instead of shareholders and shares.
This means the company:
- usually gets investments from grants, donations or membership fees
- is owned by its guarantors who have offered to guarantee an amount of money
- invests its profits back into the business instead of paying them to its owners
A guarantor’s liability is limited to the amount of money they’ve guaranteed, which they will need to pay if the company cannot pay its debts.
A company can have one guarantor who owns the whole company and acts as its only director.