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2. Text for reading. C. The Registered Company

The Companies Act 1985 (CA 1985) provides that ‘any two or more persons, associated for any lawful purpose may, by subscribing their names to a memorandum of association and otherwise complying with the registration requirements of this Act . . . form an incorporated company, with or without limited liability’.

Unlimited liability companies

Persons trading as an unlimited liability company enjoy the advantages of corporate status but their liability for the debts of the company is unlimited. Because of this, there is no obligation to disclose details of its operation, other than to its members. The company also escapes liability for an annual audit of its accounts. These advantages are now available for small private limited companies and the unlimited company form is rarely encountered. It is, however, suitable for business activities where persons are restricted from trading with limited liability and could be used by solicitors and accountants as an alternative to partnership.

Limited liability companies

The members of such companies have limited liability for the debts and liabilities of the company, although the company is always liable fully for its debts. There are two different forms of limited liability company: the company limited by guarantee and the company limited by shares, of which only the latter is suitable for trading.

Companies limited by guarantee.

The members are required to contribute to the company’s assets on liquidation the amount guaranteed when they became members. The form is used for charitable, educational or other worthwhile purposes: for example, The League Against Cruel Sports, The British Ski Federation, London Guildhall University. They can drop the word ‘limited’ from their name although their exact status must be disclosed on letterheads and other documents.

Private and public companies limited by shares

The liability of the members is limited ‘to the amount, if any, unpaid on the shares respectively held by them’. This is the most usual form of all trading companies and is the only company that can exist as a private or as a public company. The others can only exist as private companies.

Private companies cannot invite the public to subscribe for shares or debentures (loan stock). Thus private companies are restricted to raising their money through institutional sources or from the sale of shares by private treaty or to members of the family of shareholders or employees. Public companies are more closely regulated since there is a greater need to protect the general public.

  1. A private company has the word Limited (Ltd) as the last word of its name whereas the public company has the words Public Limited Company (plc).

  2. The private company can commence trading immediately on incorporation whereas the public company must obtain a certificate to the effect that it has raised the minimum capital (£50 000) which is required of a public company.

  3. The private company may only have one director whereas a public company must have at least two.

  4. Directors of private companies are not subject to age limits unless the company is a subsidiary of a public company.

  5. The company secretary of a private company does not need formal qualifications whereas the company secretary of a public company does.

  6. There are less strict rules governing many aspects of a private company including:

– restrictions on loans to directors,

– regulation of raising and maintenance of capital.

  1. Disclosure requirements in the annual return are less onerous where the private company is classified as either ‘small’ or ‘medium’. There is also exemption for small and medium-sized groups in respect of group accounts.

  2. Private companies can enjoy deregulation which enables them to dispense with formal meetings of their shareholders.

  3. A private company may be exempt from the statutory audit of their accounts.

Most companies are initially incorporated as private companies and will then ‘go public’ when they have increased sufficiently in size and need greater freedom to raise capital for expansion. Many public companies seek access to the financial markets. There are two markets for company securities access to which is regulated by the Stock Exchange. Companies seeking to join the London Stock Exchange’s Official List must comply with strict requirements of the London Stock Exchange regarding capital size, length of trading record and the percentage of shares in public hands, which must be at least 25 per cent. There is also Alternative Investment Market (AIM) for which there are no restrictions on capitalisation, length of trading record or minimum percentage of shares in public hands. Companies whose securities have been traded on AIM can apply to join the Official List after two years. The vast majority of limited liability companies are private.