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Types of limited companies

Types of limited companies

22 February 2024

Compare common limited company structures: Limited by shares, with shareholders and profit focus; Limited by guarantee, lacking shareholders, suited for not-for-profits. Understand legal and financial distinctions for effective business decisions.

A Llimited company is a company ‘limited by shares’ or ‘limited by guarantee’.

Limited by shares

The most common LTD structure involves a limited by shares company, which shareholders own as a separate legal entity. However, directors manage it. In smaller LTD’s, shareholders and directors are the same individuals. Directors work as employees of their company, not as self-employed individuals. Limited companies must pay Corporation Tax on their profits, rather than Income Tax

LTD by shares companies are usually businesses that make a profit. This means the company:

  • is legally separate from the people who run it;
  • has separate finances from its shareholders personal ones;
  • has shares and shareholders; and
  • can keep any profits it makes after paying tax.

Limited by guarantee

In essence, however, a LTD by guarantee is a LTD with no shareholders. Instead, the persons who set up the company – its members – guarantee to pay a fixed amount into the company if required on the winding up of the company. Usually, these guarantees are for small amounts.

This type of company is typically used by not for profit organisations and charities rather than trading companies.

This means a limited by guarantee company:

  • is legally separate from the people who run it;
  • has separate finances from your personal ones;
  • has guarantors and a ‘guaranteed amount’; and
  • invests profits it makes back into the company. Profits are not distributed to the guarantors.
Source: Companies House Mon, 19 Feb 2024 00:00:00 +0100

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