Different Types of Companies for proper Business Registration UK


At the time of starting a company UK, one has to decide the category of the company. Companies may be generally categorised as private, public, limited or unlimited. Further classification of limited companies may be in the form of limited liability or limited guarantee companies. However, the classification is not merely restricted to these basic forms. Each of these forms may be further classified into different forms. This article discusses what other types of companies may exist in the world of business. The first task is a quick revision of the definitions of company and its general classifications.

Company

A company may be known as a lawful body or a corporate structure. The registration process explaining how to open a company in UK is mentioned in Companies Act and has to be followed to form a company. Companies are a part of every field of technology or more generally production. They supply us all the goods that we have in this world. They are assumed to be very large structures, however, companies may be opened at a small scale. Companies are allowed to have their own constitution. Thus, they can decide certain laws for themselves.

General Classification

At the time of business registration UK, the status of the company has to be decided and mentioned in the relevant documents. The fundamental types of companies are stated below. Section 3 of Companies Act 2006 provides the definitions of limited and unlimited companies and Section 4 of the same act defines public and private companies.

Private Companies

Any company that does not belong to the public sector is a private company.

Public Companies

A public company owns an incorporation certificate that mentions its status as a public company.

Unlimited Companies

In an unlimited company the liability suggested for the members has no limitations. It is unlimited.

Limited Companies

Limited companies have limited liabilities. The limitations may be imposed by provisions. A limited company can either be bounded by shares or by guarantee.

Sub-Classes of Companies

The above mentioned types of companies are the fundamental classifications. However, companies may be differentiated further upon different factors. Some of the subclasses of companies are the following:

Companies running for Charity Purposes

A UK incorporation may not be limited to the task of production of goods and be a source of supplies to the consumers. It can have purposes that are far more different than general purpose of a company. There may be companies that have objectives related to some charity work in the society. The public, private, limited or unlimited companies may follow certain legal regulations to term themselves as charitable companies. If any company wants to be registered as a community interest companies, the provisions mentioned in the part 2 of Companies (Audits, Investigations and Community Enterprise) Act 2004 have to be followed by that company.

Limited Company Transforming into Community Interest Companies

If any company that is limited by nature intends to transform into a community interest company, it has to go through the following process:

  • The regulatory authority of community interest companies should first of all check that whether the company that wants transformation into community interest company is fulfilling all the requirements and passes the test for community interest company. The test is defined in Section 35(2) of Companies (Audits, Investigations and Community Enterprise) Act 2004, as the approval given by a sensible person that the company is working for the interest of the community.
  • The regulatory body must also take into account that if the company is an excluded company or not. An excluded company may be defined as a company having a goal of political movement.
  • After getting satisfied that the company requesting for changing its status into community interest companies is eligible for this change, the regulatory body must approve the limited company’s transformation into a community interest company.

Societas Europaea

Another type of company is the Societas Europaea. A European public limited liability company, also known as Societas Europaea is any European company with a public limited liability that may be created in any European Union state by following the provisions of Regulation (EC) 2157/2001. However, the formation of European public limited liability company can be created by following quite strict regulations. It can be formed when two companies located and registered in different states that are the members of European Union, join in together to form a collaboration. After collaboration, the two companies may get their registration done as a Societas Europea. The European public limited liability company has to register as a Societas Europaea in a state where its office is registered, given that it is a member as well. However, it will be known as a public limited liability company in every state. Moreover, it will be considered as being formed according to the regulations followed in that member state where the European public limited liability company has its office of registry.

Differentiating the Companies on the basis of their size

The above mentioned categories of companies were those outlined by the Companies Act 2006. These are the formal forms of companies and the companies’ registration is done on the basis of the previously mentioned classifications. However, the companies may be distinguished informally. Companies Act 2006 provides classification of those companies as well. Hence, Companies Act 2006 differentiates private companies by their sizes as stated in subsection 444ff of Companies Act 2006. According to subsection 465ff of the same act, the small or regular sized companies are exempted from some of the obligations of accounting. Moreover, for companies that are very small in size, subsection 475ff provides exemption from the requirement of auditing the accounts.

Companies having Single Members

It has been a common assumption that companies are formed by the combined effort of two or more than two members. However, it was from 1992, that the private companies were given the allowance of having one member only. Such companies are known as Single Member Companies. Companies Act 2006 provides special rulings for these companies. Such as, Section 357 of this act provides that there should be a written record of all the decisions that are made by any Single Member Company. The previously mentioned formal types of companies can be further classified as Single Member Companies.

The 1992 Act regarding Single Member Private Limited Companies

In 1992, single member companies were introduced. The regulations were devised for these companies. Each House of Parliament has given its approval to these regulations, as it was a requirement of the European Communities Act 1972, paragraph 2(2) of Schedule 2. Hence, the Secretary of state is authorised to act as a minister and fulfil the requirements of Section 2(2) of the same act. He may devise certain regulations that are related to the formation of Single Member Companies that are private and limited either by shares or by guarantee.

Date for the Regulations to become Effective

Section 1 of this Act states that the Citation for these acts will be The Companies (Single Member Private Limited Companies) Regulations 1992. These regulations will become effective from the next they were devised, which was 14th of July 1992.

Formation rules for Single Member Companies

Section 2 of The Companies (Single Member Private Limited Companies) Regulation 1992 is devoted for the rulings regarding the formation of single member companies. The rules are as follows:

  • Regardless of the fact that there may exist any law or enactment that states contrary to this rule, this rule allows any private company that may have either limited shares or limited guarantee, can be formed by a single individual only, provided that it falls within the definition mentioned in Section 1 of Companies Act 1985. Hence, it may have one member only.
  • The general rules regarding a private company having limited shares or limited guarantee may be followed by the single member private company. However, any alterations that are required to make it according to the single member company must be made before implementing the general rules. It should also be noted that if any law or rule contradicting the general rules exists and is an exception and has to be followed, it will be followed then.
  • The term enactment where ever stated in this regulation must incorporate an enactment. The subordinate legislation should comprise the enactment. Moreover, the subordinate legislation must be according to the definition mentioned in Section 21(1) of the Interpretation Act of 1978.

Provision regarding exemption from debts

Section 3 of this act states that:

  • If before the enforcement of these regulations a person has to pay a private company’s debts that may be limited by shares or guarantee and the debts are an obligation under Section 24 of Companies Act 1985, he may get exemption from paying those debts that were contracted on the day of enforcement of these regulations or after that day.

Parent Companies and their Subsidiaries

The large scaled businesses may consist of companies that further constitute smaller companies. These companies may either own some shares of subsidiary companies or all of the shares of subsidiary companies. Hence, they are termed as the parent companies. The definition of “Subsidiary Company” is mentioned in Section 1159 of Companies Act 2006. A subsidiary company is considered as a subsidiary company in the following cases:

  • If most of the voting rights of a subsidiary company are enjoyed by a parent company.
  • If the parent company is a member of the subsidiary company. Moreover, it is given the right to appoint or remove most of the directors in the board.
  • If the parent company is a member of the subsidiary company and is given the allowance to solely control in accordance to an agreement signed with other members which also gives most of the voting rights to the holding company.
  • If any company is subsidiary to a parent company’s subsidiary company.

The parent companies and their subsidiaries are considered as two separate lawful personalities. However, it is suggested by Companies Act 2006 via special rules, to partially consider the corporate groups as a combination of businesses. For further illustration of the rules in Companies Act 2006 regarding the corporate groups being treated as a single business the Enviroco Ltd case is stated below.

Case study of Enviroco Ltd

It is a recent case and took place in 2011. The case was taken to the Supreme Court. It so happened that a charter party was signed which protected the contractor and its co-subsidiaries via an indemnity clause. The holding company gave its shares that it had in the subsidiary company as a mortgage to the lender. This was done to make the lender an owner of those shares, registered lawfully. An important point to notice is that the case took place in Scotland. It is a rule in Scotland to legally transfer the ownership of the shares as a security. However, in England, it is typical to place a charge on the assets or shares as a security. Hence, there is no requirement of transferring the ownership legally. However, the ownership was transferred to the lender, which was a disapproval of definition presented in statute for the relationship between a holding company and its subsidiaries. Therefore, the protection given by the indemnity clause in case of harm caused by the subsidiary was also disapproved.

Hopefully, the article provides sufficient knowledge about different types of UK incorporation. Deciding about the type of company is an integral part of the process of starting a company UK.

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