FOCUS : THE VOCABULARY OF BUSINESS ORGANISATION
Forms of company legal entity in the UK: An
overview
When dealing with companies in the UK, it is
important, yet challenging, to understand the various forms of legal entity and
their respective abbreviations.
01 Sole proprietorship
Also known as a sole trader or an individual
entrepreneurship, a sole proprietorship is owned and run by one person,
although there may be numerous employees. There is no legal distinction between
the owner and the business. The owner retains all the profits from the business
and is personally liable for any debts.
02 Partnerships
General partnership
A basic form of partnership which is created by
formal agreement between two or more people who, by default, are jointly and
equally liable for any legal actions and debts. Personal assets can be attached
and liquidated to pay creditors. Profits are, by default, shared amongst the
partners in line with their capital contribution. These conditions may be
varied by specific clauses in the partnership contract.
Limited liability partnership (LLP)
In contrast to a simple partnership, a UK LLP is a
corporate body and continues to exist independently of its members. Partners
manage the business directly. Partners’ financial liability is limited to the
amount they invest, and they are not responsible for the negligence or
misconduct of others.
03 Companies
When it comes to companies, there are several
different legal forms.
Private limited company (Ltd)
There are two forms of private limited company. In
private companies limited by shares, shares may not be offered to the general
public, and shareholders’ liability is limited to the capital originally
invested. In the event of insolvency, money invested by shareholders in the
company may be lost, but their personal assets are protected.
Used mainly for non-profit organizations, a private
company limited by guarantee normally has no shareholders but members, who act
as guarantors and give an undertaking to contribute a nominal, usually very
small amount in the event of the company being wound up. Profits may be
distributed to members, but the company is then ineligible for charitable
status. Both forms must normally include the suffix Ltd in the company name,
except where specifically excluded by law.
Public limited company (PLC)
A public limited company is a limited liability
company whose shares may be sold and traded to the public. It must have
allotted shares to the value of at least 50,000 GBP. A PLC may be listed or
unlisted on the stock exchange, and can be privately held, for example by
another PLC. An individual’s financial liability is limited to a fixed sum -
usually the value of their investment.
Unlimited company (Unltd)
In contrast to a limited company, should an
unlimited company go into liquidation, shareholders are responsible for all the
outstanding financial liabilities, irrespective of their investment.
Community interest company (CIC)
CICs are social enterprises which use their profits
and assets for the public good. Instead of being distributed to shareholders, profits
are mainly reinvested to benefit the community. Where profits are reinvested in
the company, this is done with the aim of improving the community services they
provide. A CIC must be some form of limited company and cannot be a charity or
an unincorporated organization.
Charitable incorporated organization
(CIO)
A new form of legal entity used by non-profit
organizations, the CIO is designed to reduce the bureaucracy involved in
operating a charity; in contrast to charities which are set up as limited
companies and must register with both Companies House and the Charity
Commission, CIOs only have to register with the Charity Commission. As with a
limited company, the liability of members and trustees in the event of loss or
insolvency is restricted.
