When starting a business, one of the first decisions you need to make is what type of company structure to set up. This decision can be confusing, as there are many different types of companies to choose from. In this blog post, we will discuss the two most common types of companies: unlimited and limited. We will outline the pros and cons of each type, so that you can make an informed decision about which company structure is right for your business.
Different Types of Structures
An unlimited company is a type of business that does not have any restrictions on the amount of money that can be raised or lost. This is an attractive quality of an unlimited company structure, especially for businesses that want to grow astronomically in a shorter period of time, as there is a better chance of this happening.
Unlimited companies allow businesses to retain more control over their company, as there are no shareholders to answer to. This freedom is beneficial in some aspects but it can be detrimental depending on the nature of the business and its operations.
This type of company is ideal for businesses that are looking to raise a lot of capital, as there are no limits on how much money they can raise.
Raising high capital, having no shareholders to be accountable for – sounds perfect, doesn’t it? Everything comes at a cost, and for an unlimited company, it is their risk assessment and liability.
However high the benefits seem for unlimited companies, it must be taken into account that they carry higher risks, as they are liable for any debts incurred by the company.
Unlimited companies are beneficial because they have the capacity to generate higher revenue, yet the cost of this is the high levels of liability. This return of investment can be a difficult balance to find when a business is just starting out.
A limited company is a type of business that is limited in terms of its liabilities. This means that the company cannot lose more than the amount of money it has invested in the business.
Limited companies are ideal for businesses that want to protect their personal assets from being at risk if the business fails. This type of company is ideal for businesses that are looking to protect their personal assets, as they are only liable for the debts of the company up to a certain amount.
Limited companies also have more paperwork and regulations than unlimited companies, so they may be a better choice for businesses that are just starting out.
When registering a limited company, there are some checklists that the business needs to follow, including:
- A unique company name, often ending in ‘Limited’ or ‘Ltd’ to identify the type of business
- A physical address of the business
- List of Directors and Shareholders
- Particulars of the company, i.e. structure, roles for the shareholders, rights of shareholders
- Memorandum of associations
- Articles of associations
The downside of limited companies? Limited companies are typically not able to raise as much capital as unlimited companies. Unlimited companies have greater capacity for raising capital only because of their trade off with liability. As limited companies have limited liability, the stakes are lower and therefore they cannot raise as much capital.
You can learn more about the differences between limited and unlimited liability companies here.
Limited companies are usually either one of two types: Limited liability company or Co-operative company.
Limited Liability Companies
Limited liability companies are the most common type of limited company. This type of company is a separate legal entity from its shareholders, which means that the shareholders are not liable for any debts or liabilities incurred by the company.
Limited liability companies operate through investments of their shareholders, and are liable for only the amount invested. This puts shareholders in control of their assets and financial positioning, creating lower scope for liabilities.
Co-operative companies are similar to limited liability companies, but they have one key difference: co-operative companies give their members a say in how the company is run. The difference is recognised legally during the company registration process. This type of company is ideal for businesses that want to be more involved in the management of their company, who also meet the criteria for co-operative business. To be a co-operative company, at least 60% of the shareholders must engage in transactions with the company, including buying and/or selling goods or services. Other rules must be followed, including:
- Profits must be returned to shareholders as shares or rebates
- Shareholders holding no more liability than that of their shares in the company
– Unlimited companies can raise more money than limited companies
– Unlimited companies have more risks than limited companies
– Limited companies protect personal assets from being at risk if the business fails
The decision about which type of company structure is right for your business depends on a number of factors, including the size and nature of your business, and your personal financial investments.
So, which type of company is right for you? If you are looking to raise a lot of money, an unlimited company is the best option. However, if you are looking to protect your personal assets, a limited company is a better choice.
Whichever type of company you choose, make sure to consult with an accountant or lawyer to get advice on the best way to set up your business.