What’s a company limited by shares vs a company limited by guarantee?

Choosing the right company structure is a crucial first step, and choosing between different company structures can feel overwhelming. Two popular choices are a ‘company limited by shares’ and a ‘company limited by guarantee’. Whilst both offer limited liability, they cater to different needs and goals. ​

In this guide, we’ll explain the differences between 2 types of limited companies, covering definitions, key advantages, and frequently asked questions, empowering you to make the best choice for your company.​

Companies limited by shares is one of the most common types of limited company in the UK. Simply put, the liability of its shareholders is limited to the amount of money they’ve invested in the company by purchasing shares. This means if the company is in debt or faces financial difficulties, the shareholders’ assets are protected and won’t be used to pay off the debts.​

There are several key advantages of structuring your limited company by shares, these are:​

A company limited by guarantee is another type of limited company, it’s commonly used for non-profit organisations, charities, and community interest groups. Instead of having shareholders and share capital, a company limited by guarantee has members who provide a guarantee to contribute a specified amount in the event of the company's liquidation. ​

Companies limited by guarantee are all about doing good, not making a profit. They can't pay profits to their members – any extra cash they make has to go back into the company to help it achieve its goals. ​

To make it easy to understand, we’ve outlined the key differences between companies limited by shares and companies limited by guarantee: ​

1. Can a company convert from a company limited by shares to a company limited by guarantee, or vice versa?​

No, it’s not possible to change your company type, but you can deregister your existing company and register a new company and transfer the assets and liabilities across. It’s crucial to seek professional advice to ensure the process is legally compliant. It’s also important to discuss the company structure with your accountant before setting up a limited company to avoid the hassle of switching down the road. ​

2. How does the company structure affect my liability?​

With the company structure, there is a legal separation between you and your business. For companies limited by shares, you’re not personally liable for your business’s debt; for companies limited by guarantee, you might have to contribute a small amount (the guarantee amount) if your business folds, but your personal assets are otherwise safe.​

3. How to set up a limited company?​

To set up a limited company, follow this step-by-step guide on GOV.UK. Or you save your time and ensure it’s done correctly by engaging an accountant, such as Beany. Book a chat with one of our team members to discuss your situation., It’s important to note that there are some key considerations before setting up a limited company, we have an in-depth guide on the top 9 things to think about when setting up a limited company.​

4. What are my tax obligations if I have a limited company?​

No matter if you have a company limited by shares or by guarantee, your tax obligations are largely the same. Some key tax obligations are: corporation tax, VAT (if you’re VAT-registered), and PAYE. We have an in-depth blog on limited company taxes if you’re interested to learn more.​

5. What are the reporting requirements?​

Both companies limited by shares and by guarantee have reporting requirements, these are:​

6. How do I close down a limited company?​

To close a limited company in the UK, you'll need to cease trading, settle all debts and taxes, gain shareholder approval (if applicable), and apply to Companies House for "striking off" the register. This process can take several months, and we recommend you talk to your accountant to ensure you’re compliant. If your company is insolvent, you can consider alternative procedures like liquidation.​

Ditch the stress of limited company compliance. Beany makes it easy, handling everything from corporation tax to VAT returns. You’ll get a team of experts helping you stay compliant, so you can focus on growing your business. Visit our website, book a call with one of our team members or register today.​