There are four types of companies:
Private company limited by shares: This company has a share capital and the liability of each member is limited to the amount, if any, unpaid on their shares. A private company cannot offer its shares for sale to the general public.
Private company limited by guarantee: This company does not have a share capital and its members are guarantors rather than shareholders. The members’ liability is limited to the amount they agree to contribute to the company’s assets if it is wound up.
Private unlimited company: An unlimited company may or may not have a share capital but there is no limit to the members’ liability.
Public limited company: A public company has a share capital and limits the liability of each member to the amount unpaid on their shares. It may offer its shares for sale to the general public and may be quoted on the stock exchange.
A public company must meet the following requirements:
- it must have at least two directors (who may also be members of the company);
- it must have at least one director who is an individual;
- all individual directors must be aged 16 or over;
- it must have at least one secretary;
- the secretary must be qualified to act as a secretary.
A qualified secretary is someone who:
- has held the office of secretary of a public company for at least three of the five years before their appointment; or
- is a barrister, advocate or solicitor called or admitted in any part of the United Kingdom; or
- is a person who, by virtue of his or her previous experience or membership of another body, appears to the directors to be capable of discharging the functions of secretary; or
- he is a member of one of the following professional bodies:
- Institute of Chartered Accountants in England and Wales.
- Institute of Chartered Accountants of Scotland.
- Institute of Chartered Accountants in Ireland.
- Institute of Chartered Secretaries and Administrators.
- Association of Chartered Certified Accountants.
- Chartered Institute of Management Accountants.
- Chartered Institute of Public Finance and Accountancy.
A public limited company cannot conduct business or exercise borrowing powers unless it has obtained a trading certificate from Companies House confirming that it has the minimum allotted share capital. It is an offence to trade without a trading certificate and the directors are liable, on conviction, to a fine.
Different rules apply if a company wishes to re-register from a private company limited by shares or a private unlimited company to a public company.
Community Interest Company
A Community Interest Company (‘CIC’) is a limited company designed for people who want to carry out activities that are intended to benefit the community. CIC’s are registered as companies under the Companies Act after the CIC Regulator has approved the application to form a CIC. The regulator also has a continuing monitoring and enforcement role.
Flat Management companies
A Flat Management company is a company that has been formed to manage a property divided into a number of separate flats. Each flat owner usually has a lease of their own flat, but they may also be a member of a management company that owns the freehold (or lease) of the entire building. As members of the company, the flat owners have their say in running the building.
If the members own shares in the company, it is common practice in the company’s articles of association that shareholders who sell their flats must also transfer their shares to the new owners. This ensures that, at any given time, the limited company represents the interests of all the current flat owners, and it remains a separate legal entity regardless of who holds its shares.
Leaseholders can also exercise their right to manage the building they live in. To obtain the right to manage the leaseholders must set up a ‘Right to Manage’ (‘RTM’) limited company.
A limited company could also be formed to own and manage the common parts of a development made up of separate units under ‘commonhold’. This type of company is called a ‘commonhold association’.
Right to Manage (‘RTM’) companies
RTM companies were introduced under the Commonhold and Leasehold Reform Act 2002. These are private companies limited by guarantee enabling long leaseholders in blocks of flats to take over the management of their building.
Leaseholders must form a limited by guarantee company to exercise the management functions. The constitutional rules of an English RTM company are prescribed in articles of association included in The ‘RTM Companies (Model Articles) (England) Regulations 2009’ (SI 2009/2767). These regulations apply to all existing and proposed RTM companies.
Commonhold Associations were introduced under the Commonhold and Leasehold Reform Act 2002. Commonhold is a form of freehold land ownership whichis an alternative to long leasehold ownership of flats and other interdependent properties. It combines freehold ownership of a single property (a unit) in a larger development with membership of a limited company that owns and manages the common parts of the development, for example a block of flats where each flat is a unit and all the other parts, such as the hallway are commonhold.
The constitutional rules of commonhold associations registered in England and Wales are prescribed in the articles of association included in The Commonhold Regulations 2009 (SI 2009/2363).