Types of Companies – Legal Entities

Sole Trader

A sole trader business is a company owned and controlled by a single individual, whilst they may also employ a number of staff.  The UK law sees the business and the owner as one, meaning he/she is personally responsible for any debt which may occur.

Examples of sole traders are usually smaller, more local businesses such as tradespeople, hairdressers and photographers.

As a sole trader they must:

  • Send a “Self Assessment Tax Return” annually
  • Pay income tax on all profits made
  • Pay National Insurance
  • Register VAT if takings are predicted to be in excess of £83,000 per annum.

Private Limited Company limited by Shares (LTD)

A private limited company  is known as incorporated, meaning unlike sole traders, they are able to sue or own assets in their own right.

A private limited company is owned by shareholders who hold one or more shares, however these shares do NOT trade on the stock exchange.

Examples of LTD companies are usually small independent retailers

Public Limited Company (PLC)

A public limited company shares all the same traits as a private limited company, however the main difference being that they DO share trade on the stock exchange.

They are often  large and high recognisable business, including retailers, manufacturers.  Most large brands that you will have heard of will be public limited companies with the likes of Microsoft, Sony and Nintendo all sharing on the stock exchange.

Private Limited Company limited by Guarantee (LBG)

A company limited by guarantee has no shares, therefore no shareholders.  The company is instead controlled by “members” who have to pay a set amount towards any debts that may occur.  This means members are then protected for any personal liability of any debt.

This is often used for companies such as charities, community groups / projects and societies, which are usually known as not-for-profit organisations.  This means any profit made by the company do not have to be distributed among owners and employees and is held within the company, or used for other purposes.

Ordinary” Business Partnership

This is a partnership between an individual and a business partner/s who personally share responsibility of a business. This responsibility includes:

  • any debt the business incurs
  • all bills for assets you purchase for the business (e.g. stock and equipment)

Whilst applying for a partnership, the partner does not have to be an actual person, with a limited company also counting as a legal person.

As a business partnership they must:

  • Send a “Self Assessment Tax Return” annually
  • Pay income tax on all profits made
  • Pay National Insurance
  • Register VAT if takings are predicted to be in excess of £83,000 per annum.

Limited Partnership / Limited Liability Partnership (LLP)

This mainly effects the business owner/s liability for any company debt.

As a limited partnership responsibility for any debts that is unable to be paid is split among the business partners.

Partners’ responsibilities differ as “general” partners are liable for the whole of the partnerships debts, whilst a “limited” partner are only liable to the amount they invested into the business.

The partners in a limited liability partnership aren’t personally responsible for any debts the business cannot afford to pay and is only limited to the amount of money they have invested into the business.

Unincorporated Association

An unincorporated association is an organisation usually assembled through an agreement between a group of people who build a partnership for a reason other than to make a profit, including:

  • charities
  • voluntary groups
  • social clubs

It is free to set up an unincorporated association and it does not have to be registered.  However, each individual member will be personally responsible for any debts which may occur.

If the business becomes successful and begins to make a profit, they must start to pay corporation tax and begin to perform company tax returns, similar to a limited company as mentioned above.

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