TYPES OF COMPANIES IN THE UK: PROS, CONS & INCORPORATION FORFOREIGN NATIONALS
- Ashank Rao
- Mar 10
- 4 min read
By Antabikhya Gogoi, Legal Intern at Emkay Solutions and a 3rd Year B.A. LL.B.(Hons) Student at NLU Assam
INTRODUCTION
Opening a company anywhere in the world requires careful consideration of various legal, financial, and regulatory factors. It is the same when incorporating a business in the United Kingdom (UK) and in fact it is one of the most important decisions to select the appropriate legal structure. The UK offers several business structures, such as sole proprietorships, partnerships, limited liability partnerships (LLPs), and private or public limited companies (Ltd or PLC). Each of these structures has advantages and disadvantages of its own depending on variables like liability, taxation, decision-making authority, and legal requirements. The type of company will impact the level of control, financial obligations, and compliance responsibilities, so it's critical to match the legal framework with the long-term growth strategy and business goals.
DIFFERENT TYPES OF COMPANIES IN THE UK
Sole Proprietorship
A sole proprietorship or a sole trader is simply a single person running a business on his own. It's a popular preferred option for independent entrepreneurs. Here the business and the owner are legally the same entity so the setup process is simple, and financial reporting obligations are relatively light. This structure offers ease of management, making it an attractive choice for those starting out on their own. Advantages: ● Setup is simple and requires little paperwork. ● Full control over business decisions. ● The owner i.e. the sole trader acquires all of the profits. ●Menial rules and regulations. ●Qualifies for particular tax breaks and incentives, which lower the total tax burden.. Disadvantages: ● Unlimited liability—personal assets can be used to pay debts. ● Harder to raise capital compared to limited companies. ● Business ceases upon the owner's death. ● In case of higher, higher tax will be imposed, increasing the overall tax burden.
Partnerships
A partnership is a business owned and operated by two or more people who are called partners that distribute the overall responsibilities, profits, and liabilities among themselves. This lowers the burden and allows for shared decision-making and risk management. It is especially popular among professionals such as lawyers, doctors, and accountants who often collaborate to provide specialized services. Advantages: ● Shared decision-making and responsibilities. ● Setting up a partnership is quick, easy, and cost-effective. ● Combining funds makes it easier to raise capital and expand. Disadvantages: ● Unlimited liability like sole traders. ● Potential for disputes among partners which could influence business operations. ● Shared profits which ultimately lowers individual income.
LLPs (Limited Liability Partnerships)
An LLP is a business structure that composes both features of a partnership and a limited company. It offers the perks of a partnership while ensuring limited liability for its members. Advantages: ● Limited liability for partners i.e. no personal liability. ● Members receive profits as personal income, paying only income tax instead of corporate tax, making tax management easier. ● Flexible management structure without needing a board of directors. Disadvantages: ● More administrative responsibilities than a general partnership. ● LLPs must disclose certain information, like financial statements and member contributions, which can be a downside for businesses wanting privacy. ● Starting and running an LLP can cost more than a regular partnership.
Private Ltd.
A Private Limited Company (Ltd) is a separate legal entity from its owners, with shares owned privately. Advantages: ● Limited liability for shareholders. ● Easier to raise capital than sole traders or partnerships because of “ltd.” in the business name, ● Business continuity is not affected by shareholder changes. ● Corporation tax rates are lower than personal income tax rates. Disadvantages: ● Must disclose financial information publicly. ● More regulatory compliance than a sole trader or partnership.
PLC (Public Limited Company)
A PLC is a company whose shares can be publicly traded on the stock exchange. Advantages: ● Ability to raise large amounts of capital from the public. ● Increased credibility and market presence. ● Limited liability for shareholders as shareholders are not responsible for the company's debts Disadvantages: ● Expensive and time-consuming to set up ● More strict financial reporting and compliance requirements. ● Risk of losing control due to public shareholders.
CIC (Community Interest Company)
A CIC is a business designed to benefit the community rather than private shareholders. Advantages: ● Aims to provide social benefits. ● Limited liability for owners. ● Eligible for government grants and funding. ● Capable of attracting customers and investors passionate about supporting social causes. Disadvantages: ● Restrictions on profit distribution. Limits on profits might discourage potential investors. ● More regulatory oversight than standard private companies.
COMPANY INCORPORATION PROCESS FOR FOREIGN NATIONALS IN THE UK
There are 6 total steps for the process of incorporation of a company for foreign nationals in the UK. They are as follows:
Selecting a Business Structure
Decide on the type of company, commonly a Private Limited Company (Ltd) or Limited Liability Partnership (LLP) among others.
Select a Company Name
It must be original and unique. Also, it must comply with Companies House regulations.
Appoint Directors & Shareholders and Register a UK Address
At least one director and one shareholder—who may be the same individual—are necessary for a private limited corporation. Foreign nationals can be directors and shareholders without UK residency.
Prepare Company Documents and Register your Company
Essential documents like the Memorandum of Association and Articles of Association defining company structure and rules must be drafted before the official registration.
Obtain a UK Business Bank Account
A business bank account must be opened under the company's name, providing registration documents as required by banks.
Register for Taxes with HMRC (His Majesty's Revenue and Customs)
Within three months of beginning business in the UK, register for corporation tax. In the event that yearly revenue surpasses £90,000, VAT registration is necessary. Within three months of opening for business, all companies are required to register for corporation tax.
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