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.

Part of Set up a limited company: step by step

  1. Step 1 Check if setting up a limited company is right for you

    1. Check what a private limited company is

    How you set up your business depends on what sort of work you do. It can also affect the way you pay tax and get funding.

    Most businesses register as a limited company or a sole trader.

    1. Find out about the different ways to set up a business
    1. Find local advice and free support for your business on business.gov.uk

  2. Step 2 Choose your limited company type

    1. You are currently viewing: Check whether you'll be limited by shares or guarantee

  3. Step 3 Choose directors and a company secretary

    You must appoint a director but you do not have to appoint a company secretary.

    1. Find out what directors are responsible for
    2. Check who can be a director or company secretary

  4. Step 4 Decide who the shareholders are

    You need at least one shareholder, who can be a director.

    1. Check how to choose shareholders for a company limited by shares
    2. Find out how dividends from shares are taxed

  5. or Decide who your guarantors are

    You need at least one guarantor who can be a director.

    1. Check how to choose guarantors for a company limited by guarantee

  6. and Identify people with significant control (PSC) over your company

    You need to identify people with significant control (PSC) - for example, anyone with more than 25% of the shares or voting rights.

    1. Find out what counts as a PSC

    You'll confirm these when you register your company with Companies House.

  7. Step 5 Choose a name

    1. Check the rules for company names
    2. Check if the name you want is available
    3. Check existing trade marks

  8. Step 6 Prepare documents agreeing how to run your company

    You need to prepare documents agreeing how to run your company. These documents include the :

    • 'memorandum of association'
    • 'articles of association'
    • 'statement of capital'
    • 'statement of guarantee'
    1. Find out how to create these documents

  9. Step 7 Check what records you'll need to keep

    1. Check the company and accounting records you must keep

  10. Step 8 Register your company with Companies House

    You'll need to register an official address and choose a SIC code - this identifies what your company does.

    1. Check the rules for registered office addresses and email addresses
    2. Check what your SIC code is
    3. Register your company with Companies House

  11. Step 9 Find out what to do after you've registered

    There are some things you may need to do once you've registered a limited company.

    1. Add Corporation Tax services to your business tax account
    2. Check the next steps for your limited company