The Different Types of Business
Incorporated Business
An incorporated business exists as a separate legal entity from its owners and
managers. Including:
a) Limited Company
b) Public Company
c) Limited Liability Partnership (Limited Liability Partnerships Regulations 2001).
They have their own distinct legal personality and can assume rights and
obligations. Owners are generally not liable for business debts.
• If it fails, the members lose the money they invested in the company but no more,
they have limited liability.
• Model Article (MA) 2: Only if the shareholder has not paid the full amount that
they agreed to invest can they be asked to contribute up to the unpaid amount.
Unincorporated Business
Run by individuals who have not set up a separate legal entity to run the business.
Including:
a) Sole Traders
b) Partnerships (Partnership Act 1890)
c) Limited Partnerships (Limited Partnerships Act 1907)
a. LPs must be registered with Registrar of Companies, who also acts as the
Registrar of LPs.
b. At least one general partner that has unlimited liability.
c. An LP is permitted to have a limited partner whose liability is limited to the
amount they initially invested in the business. Conditions: The limited
partner must not:
i. Control or manage the LP.
ii. Have the power to take binding decisions on behalf of the LP. OR
iii. Remove their contribution to the LP for as long as it is in business.
d. If the limited partner breaches any of these conditions, they become general
partner.
Individuals or partners have full personal liability for the debts of the business and
can be made bankrupt if they cannot pay (unlimited liability). Their personal assets
are at risk.
Other Types
• Companies limited by guarantee: Usually for organisations not seeking to
make a profit. Shareholder guarantees the company’s debts, up to a specified
amount.
• Unlimited Companies.
• Community interest companies: A LLC intended for businesses that wish to
use their profits and assets for the public good, not private profit.
,• Charitable incorporated organisations: Allow for advantages of a corporate
structure, without burden of dual regulation, Registrar of Companies and Charity
Commission.
• Overseas companies.
• Companies established by Act of Parliament or Royal Charter: Only 45 still
in existence, generally historic.
• Joint ventures: A commercial enterprise, undertaken jointly, by two or more
parties.
o Retain their own identity but pool their resources for a specific purpose.
o E.g. Google and NASA developing Google Earth.
o Can be governed by contract or a corporate structure, controlled jointly.
Private Limited Company
• Companies have a separate legal personality. The people who own and run it
are separate to the company itself (Salomon v A Salomon and Co Ltd).
• The individuals who own the shares are not usually liable for its debts. Their
liability is limited to the amount they paid for the shares.
• The business assets are owned by the company, it is managed by the directors,
the company is party to the contracts and the company is liable for debts
incurred.
Piercing the Corporate Veil
• Piercing the corporate veil refers to a situation in which courts put aside limited
liability and hold a corporation's shareholders or directors personally liable for
the corporation’s actions or debts.
• The corporate veil can only be pierced when a person is under an existing legal
obligation or liability, or is subject to an existing legal restriction which he
deliberately evades or whose enforcement he deliberately frustrates, by
interposing a company under his control (Prest v Petrodel Resources
Limited and others)
• The corporate veil can then only be pierced so as to deprive the company or its
controller of the advantage that they would otherwise have obtained by the
company’s separate legal personality.
Forming a Company
To incorporate a new company, the applicant must:
• Complete and submit Companies House form IN01. AND
• A memorandum of association to Companies House.
• Possibly company’s article of association.
With the applicable fee. Application can be made electronically (online), on paper
(by post) or through suitably enabled software provided by Company House.
• Application can be made by individuals, solicitor, accountant or company
formation agent.
,• Alternatively, law and accountancy firms may have a shelf company the client
can use, to avoid the need to set up a company from scratch.
o Company which has already been set up, normally with 2 directors and 2
shareholders, each of whom owns one ordinary £1 share.
o The directors and initial subscribers of the shelf company will normally be
employees of the law firm.
Certificate of Incorporation:
If the person processing the application is satisfied that the requirements of the CA
2006 have been met, they will incorporate the company and issue a certificate of
incorporation.
A company comes into existence upon the certificate of incorporation being issued
(ss.15(4) and 16(2) CA 2006). The certificate must state:
a) The name and registered number of the company.
b) The date of its incorporation.
c) Whether it is a limited or unlimited company and if it is limited, by shares or
guarantee.
d) Whether it’s a private or public company.
e) Whether the company’s registered office is in England, Wales, Scotland or
Northern Ireland.
The certificate will be signed by the Registrar or authenticated by the Registrar’s
official seal.
• Companies need to register with the HMRC for corporation tax.
• If companies are formed online, it is registered for corporation tax automatically.
• If application is made by post, using a formation agent or third-party software, a
separate application must be made within three months of starting to do
business.
Decisions to be Made
Name
The IN01 requires the applicant to insert the company name.:
• Private companies must end in ltd or limited and cyfyndig or cyf for Wales (s.59
CA 2006). Public companies: plc or public limited companies and ccc for Wales
(s.58 CA 2006).
• The company name must not be the same as an existing company (s.66 CA
2006).
o An applicant can only register a ‘same as’ name if the proposed new
company will be part of the same group with the existing name (Names Regs
2015).
• Restricted names: A company cannot use a name which the Secretary of State
for Business, Energy and Industrial Strategy (‘BEIS’), would constitute a criminal
offence or be offensive (s.53 CA 2006)
• Companies which suggest a connection with a government department or
authority must get approval from the Secretary of State for BEIS (s.54 CA 2006).
, • Name containing certain sensitive words or expressions must be approved by
the Secretary of State for BEIS. Including words which refer to geographical
areas e.g., British and regulated professions e.g., university or dental.
• Certain letters, characters, signs, symbols and punctuation cannot be used in
the company name under the Names Regs 2015.
• The name cannot exceed 160 characters, including spaces.
Companies can trade using a different name to their registered name i.e., trading
name or business name. There is no need to register trading names. Better to
check IP website before registering a company name.
ECCTA 2023: Companies House can now reject an application to register a name
where it believes that the name:
• Is intended to facilitate fraud.
• Is comprised of or contains a computer code.
• Is likely to give the false impression the company is connected to a foreign
government or an international organisation whose members include two or
more countries or territories or their governments.
Companies House can direct companies to change their name. If company fails to
do so within 28 days, Companies House can choose a new name for the company.
Companies House also has the power to suppress a name from the register while a
company responds to a direction to change its name. Failure to do so is an offence.
Registered Office
Company needs a registered office (s.86 CA 2006) and must put address on IN01.
• The address must be publicly available.
• Must be in the same part of the UK that they are registered.
• ECCTA 2023: Companies must ensure their registered office is an appropriate
address. PO box is not permitted. Company and its directors are guilty of an
offence which is punishable by fine if the company does not have an appropriate
registered office address.
• A board resolution is required to change the company’s registered office (s.87
CA 2006) and must file form AD01.
• Registered office is where certain records must be kept e.g., board and general
meeting minutes.
• ECCTA 2023: requires company to maintain their own register of members and
stop them from keeping it on the central register at Companies House.
Email Address: Under ECCTA 2023, the company must give an appropriate email
address for correspondence.
First Directors
Applicant will need to decide who the company’s directors will be and include their
name and date of birth on IN01.
• Every company must have at least one director who is a natural person
(s.155(1) CA 2006).
• Directors must be over 16 (s.157 CA 2006).
Incorporated Business
An incorporated business exists as a separate legal entity from its owners and
managers. Including:
a) Limited Company
b) Public Company
c) Limited Liability Partnership (Limited Liability Partnerships Regulations 2001).
They have their own distinct legal personality and can assume rights and
obligations. Owners are generally not liable for business debts.
• If it fails, the members lose the money they invested in the company but no more,
they have limited liability.
• Model Article (MA) 2: Only if the shareholder has not paid the full amount that
they agreed to invest can they be asked to contribute up to the unpaid amount.
Unincorporated Business
Run by individuals who have not set up a separate legal entity to run the business.
Including:
a) Sole Traders
b) Partnerships (Partnership Act 1890)
c) Limited Partnerships (Limited Partnerships Act 1907)
a. LPs must be registered with Registrar of Companies, who also acts as the
Registrar of LPs.
b. At least one general partner that has unlimited liability.
c. An LP is permitted to have a limited partner whose liability is limited to the
amount they initially invested in the business. Conditions: The limited
partner must not:
i. Control or manage the LP.
ii. Have the power to take binding decisions on behalf of the LP. OR
iii. Remove their contribution to the LP for as long as it is in business.
d. If the limited partner breaches any of these conditions, they become general
partner.
Individuals or partners have full personal liability for the debts of the business and
can be made bankrupt if they cannot pay (unlimited liability). Their personal assets
are at risk.
Other Types
• Companies limited by guarantee: Usually for organisations not seeking to
make a profit. Shareholder guarantees the company’s debts, up to a specified
amount.
• Unlimited Companies.
• Community interest companies: A LLC intended for businesses that wish to
use their profits and assets for the public good, not private profit.
,• Charitable incorporated organisations: Allow for advantages of a corporate
structure, without burden of dual regulation, Registrar of Companies and Charity
Commission.
• Overseas companies.
• Companies established by Act of Parliament or Royal Charter: Only 45 still
in existence, generally historic.
• Joint ventures: A commercial enterprise, undertaken jointly, by two or more
parties.
o Retain their own identity but pool their resources for a specific purpose.
o E.g. Google and NASA developing Google Earth.
o Can be governed by contract or a corporate structure, controlled jointly.
Private Limited Company
• Companies have a separate legal personality. The people who own and run it
are separate to the company itself (Salomon v A Salomon and Co Ltd).
• The individuals who own the shares are not usually liable for its debts. Their
liability is limited to the amount they paid for the shares.
• The business assets are owned by the company, it is managed by the directors,
the company is party to the contracts and the company is liable for debts
incurred.
Piercing the Corporate Veil
• Piercing the corporate veil refers to a situation in which courts put aside limited
liability and hold a corporation's shareholders or directors personally liable for
the corporation’s actions or debts.
• The corporate veil can only be pierced when a person is under an existing legal
obligation or liability, or is subject to an existing legal restriction which he
deliberately evades or whose enforcement he deliberately frustrates, by
interposing a company under his control (Prest v Petrodel Resources
Limited and others)
• The corporate veil can then only be pierced so as to deprive the company or its
controller of the advantage that they would otherwise have obtained by the
company’s separate legal personality.
Forming a Company
To incorporate a new company, the applicant must:
• Complete and submit Companies House form IN01. AND
• A memorandum of association to Companies House.
• Possibly company’s article of association.
With the applicable fee. Application can be made electronically (online), on paper
(by post) or through suitably enabled software provided by Company House.
• Application can be made by individuals, solicitor, accountant or company
formation agent.
,• Alternatively, law and accountancy firms may have a shelf company the client
can use, to avoid the need to set up a company from scratch.
o Company which has already been set up, normally with 2 directors and 2
shareholders, each of whom owns one ordinary £1 share.
o The directors and initial subscribers of the shelf company will normally be
employees of the law firm.
Certificate of Incorporation:
If the person processing the application is satisfied that the requirements of the CA
2006 have been met, they will incorporate the company and issue a certificate of
incorporation.
A company comes into existence upon the certificate of incorporation being issued
(ss.15(4) and 16(2) CA 2006). The certificate must state:
a) The name and registered number of the company.
b) The date of its incorporation.
c) Whether it is a limited or unlimited company and if it is limited, by shares or
guarantee.
d) Whether it’s a private or public company.
e) Whether the company’s registered office is in England, Wales, Scotland or
Northern Ireland.
The certificate will be signed by the Registrar or authenticated by the Registrar’s
official seal.
• Companies need to register with the HMRC for corporation tax.
• If companies are formed online, it is registered for corporation tax automatically.
• If application is made by post, using a formation agent or third-party software, a
separate application must be made within three months of starting to do
business.
Decisions to be Made
Name
The IN01 requires the applicant to insert the company name.:
• Private companies must end in ltd or limited and cyfyndig or cyf for Wales (s.59
CA 2006). Public companies: plc or public limited companies and ccc for Wales
(s.58 CA 2006).
• The company name must not be the same as an existing company (s.66 CA
2006).
o An applicant can only register a ‘same as’ name if the proposed new
company will be part of the same group with the existing name (Names Regs
2015).
• Restricted names: A company cannot use a name which the Secretary of State
for Business, Energy and Industrial Strategy (‘BEIS’), would constitute a criminal
offence or be offensive (s.53 CA 2006)
• Companies which suggest a connection with a government department or
authority must get approval from the Secretary of State for BEIS (s.54 CA 2006).
, • Name containing certain sensitive words or expressions must be approved by
the Secretary of State for BEIS. Including words which refer to geographical
areas e.g., British and regulated professions e.g., university or dental.
• Certain letters, characters, signs, symbols and punctuation cannot be used in
the company name under the Names Regs 2015.
• The name cannot exceed 160 characters, including spaces.
Companies can trade using a different name to their registered name i.e., trading
name or business name. There is no need to register trading names. Better to
check IP website before registering a company name.
ECCTA 2023: Companies House can now reject an application to register a name
where it believes that the name:
• Is intended to facilitate fraud.
• Is comprised of or contains a computer code.
• Is likely to give the false impression the company is connected to a foreign
government or an international organisation whose members include two or
more countries or territories or their governments.
Companies House can direct companies to change their name. If company fails to
do so within 28 days, Companies House can choose a new name for the company.
Companies House also has the power to suppress a name from the register while a
company responds to a direction to change its name. Failure to do so is an offence.
Registered Office
Company needs a registered office (s.86 CA 2006) and must put address on IN01.
• The address must be publicly available.
• Must be in the same part of the UK that they are registered.
• ECCTA 2023: Companies must ensure their registered office is an appropriate
address. PO box is not permitted. Company and its directors are guilty of an
offence which is punishable by fine if the company does not have an appropriate
registered office address.
• A board resolution is required to change the company’s registered office (s.87
CA 2006) and must file form AD01.
• Registered office is where certain records must be kept e.g., board and general
meeting minutes.
• ECCTA 2023: requires company to maintain their own register of members and
stop them from keeping it on the central register at Companies House.
Email Address: Under ECCTA 2023, the company must give an appropriate email
address for correspondence.
First Directors
Applicant will need to decide who the company’s directors will be and include their
name and date of birth on IN01.
• Every company must have at least one director who is a natural person
(s.155(1) CA 2006).
• Directors must be over 16 (s.157 CA 2006).
