A private limited company is a legal entity that has a share capital, unable to be sold to the general public, and is separate from its officers and shareholders. It has its own profits, losses, assets, and liabilities which are limited to the company. As such, the officers and shareholders are protected against financial liability in case of insolvency, contrary to the liability of a sole trader or partnership where the assets and liabilities belong to the individuals connected to the company.
Ownership of a limited company is recognised through the division of shares, meaning that the liability of the shareholders or investors of a company is limited to their shares held or money invested in the company. They cannot be held liable for the losses that are beyond their holding held or invested in the company as limited liability protects the personal assets of the officers and shareholders, should the company run into financial difficulties.
A private unlimited company, much like a private limited company, must be registered with Companies House (the “Registrar”), have memorandum and articles of association as well as directors who run the daily business of the company on behalf of it’s shareholders. However this type of company can, but is not obliged to, have a share capital. Persons of significant control (“PSC”), along with an annual confirmation statement, must still be filed with the Registrar. The filing of annual accounts with Companies House is exempt (unless the company has been either a subsidiary undertaking or a parent company of an undertaking which is limited during the relevant accounting period).
The main difference of an unlimited company to a limited company is that there is no limit to the liability of shareholders. This means that there is no limit to the losses that the shareholders must bear if insolvency occurs. Should an unlimited company be unable to pay off its debts, the creditors are lawfully able to seize the personal assets of the officers and shareholders of the company, meaning that they are responsible regardless of their stake held in the company.
It is a requirement of limited and unlimited companies to provide the public with transparency of ownership and control of UK companies. Transparency comes in the form of the PSC register.
An individual or company is considered as a PSC if they directly or indirectly:
• Hold more than 25% of shares in the company;
• Hold more than 25% of voting rights in the company;
• Hold the right to control the appointment or removal of the majority of the board; or
• Hold the right to exercise, control or significantly influence the company.
The PSC register assists with reducing financial crime and also applies to other companies including:
• Certain public companies; and
• Limited Liability Partnerships.
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