The overwhelming majority of commercial and non-profit companies are incorporated as ‘limited by shares’ or ‘limited by guarantee’ . To help you determine which one is best for your business, we explain the differences between the two structures and weigh up the pros and cons of limited by shares vs. limited by guarantee companies.
Most companies are incorporated (registered) as limited by shares. This is an ideal choice if you want to run a commercial business, either alone or with others, to generate profit for personal benefit (i.e. to pay yourself).
Limited by guarantee companies are typically set up by non-profit enterprises and charitable organisations. Surplus income (profit) is used to further the business’s non-profit or charitable aims rather than as a source of personal income.
While these two company types differ in terms of profit distribution, they both provide limited liability protection to the business owners. This is one of the main attractions and advantages of company formation .
In the first instance, the most straightforward and logical approach is to choose a company structure based on your planned distribution of profits:
If your decision is not so straightforward, please speak to an accountant or professional business adviser for expert help and guidance.
Unfortunately, you cannot change the limited liability of an existing company from ‘guarantee’ to ‘shares’. This type of re-registration is only available for converting a company limited by shares to an unlimited company (or vice versa) or a private limited company to a public limited company (and vice versa).
Suppose you wish to change your company’s structure. In that case, you will have to incorporate an entirely new company, and you will still be required to meet all filing and reporting obligations for your existing company until it has been dissolved. The company dissolution process can take around three months to complete.
There is also the issue of the company name. If you wish to use the same name for your new limited by shares company, you will have to wait until the dissolution has been finalised before registering the name as a limited by shares company.
Alternatively, you can change the name of your limited by guarantee company, register your new company as soon as the name has been approved, and start the dissolution process for your limited by guarantee company. This may be somewhat burdensome, but it’s probably the best way to ensure your original company name is available to register.
When you are ready to set up your limited by shares or limited by guarantee company, you must complete an application for Companies House. You can do this online through Rapid Formations . Simply choose a company name, select one of our company formation packages and any required address services, and complete the online application form.
We will review your submission and send it to Companies House for approval. Your application should be approved within 24 hours, and your new company will be ready to start trading.