Types of corporations and how to incorporate your startup

Starting the journey with your new startup brings enthusiasm and plenty of challenges. There will be many questions and aspects you have to answer, one of which will likely involve the different kinds of incorporation structures.

The corporation structure you choose will significantly impact how much tax you pay, your personal liability if the business fails, and how much administrative work is required.

Starting with the wrong setup can lead to numerous issues that require extensive assistance. Thus, here’s a quick guide on incorporating your startup to assist you in getting started!

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Table of contents

Types of corporations

The following are some of the main categories of corporations:

1. Limited liability partnership
An LLP is comparable to a partnership except that the partner’s liability is restricted to the amount of money they invest in the company. The LLP needs to register with HMRC and Companies House. Additionally, annual accounts also have to be prepared and submitted.

An LLP can be implemented with two or more members; a member can be a company or an individual. All members must file a personal Self Assessment Tax Return each year, pay income tax on their portion of the partnership’s profits, and pay National Insurance to HMRC. Members’ duties and stake in the profits are outlined in an LLP agreement.

2. Public limited company (PLC)
A corporation whose ownership is open to the public is known as a public company. Any individual can purchase shares in the company’s stock.

A limited company is a corporation where a person’s financial liability for the business is restricted to a specific amount, typically the value of their investment.

4. Private company limited by shares (LTD)
Compared to a public corporation, a private corporation is one that any public member cannot own. Instead, it will be owned by a non-governmental organization (NGO) or a relatively small number of stockholders, and the purchase and sale of the company’s shares will take place privately.

The fact that these businesses are limited, like PLCs, has the same effects on private companies as on public ones. Here also, an individual is only liable to the extent they invested in the corporation.

5. Company limited by guarantee
The two types of limited companies listed are significantly different from a company that is limited by guarantee.

In this case, the individuals involved are not liable for a specific amount depending on their investment. This company status only applies to entities without shareholders, such as smaller, non-profit organizations.

These companies normally don’t have shareholders; instead, they have a group of people who act as guarantors and agree to pay a small amount to wind up the business in case of an event. As per UK law, these businesses must include ‘Limited’ in their names; however, exceptions can be made, for instance, businesses that do not distribute their profits to their shareholders.

How do you incorporate a business?

There are many guidelines necessary to incorporate your startup. The laws governing it may vary slightly from one place to another.

Here are a few procedures for establishing a corporation:

1.  Register a company name
Before selecting a name for your company, ensure it’s available in the UK.

When selecting a name for your business:

  • Read about the industry you’re working in: Competitors’ can help you come across different names that can inspire you.
  • Choose a name with meaning: Ensure your company’s name clearly describes what you do since this is the first thing a potential customer will learn about you.
  • Keep your business name short: This is simpler to remember than a long one.
  • Avoid names that are difficult to spell: You want a simple name to pronounce.

2. Enter your company information
When you register a UK business, much of the details you provide will be made

available to the public. Companies House will need details of your:

  • Registered office – Companies House and HMRC will send mail to this address. It must be in the UK, and the firm directors must be reachable at the address.
  • Company directors – Your business must have a minimum of one director. Company House will need their name, residential address and date of birth.
  • Shareholders – At least one shareholder is required for every company; also, it can be the same person as the director. Company House will need their name, residential address and date of birth. 

Hire a Startup Accountant

Work with a London-based accountant for tax, accounting, payroll, & EIS/ SEIS needs.

Have a question? Call us on
0203 900 3500
Monday to Friday 9am – 5pm

3.  Allocate company shares
Registering a business in the UK will require you to distribute shares to your shareholder(s). The easiest way is to distribute one share to every shareholder and make every individual share worth £1. 

4.  Complete the Memorandum and Articles of the Association
These records define how your business will be managed. Before you create a UK limited company, the company’s secretary, shareholder(s), and director(s) must approve and sign them.

5.  Submit everything to the Companies House
For same-day registration, submit your application by 3 pm. And that’s it – your new business is ready to start!

Final thoughts

When incorporating a startup, knowing the different types of corporations available is crucial, as each has distinct advantages and disadvantages. It is essential to evaluate the unique requirements of your business before making a final decision.

Incorporating a startup can be intricate, involving submitting various forms, registering with the state, and obtaining the necessary licenses and permits. Consulting with a lawyer or other expert is advisable to ensure everything is done correctly and guide you through the process.

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