Private Company Limited by Shares
A limited Company is an organisational structure which confers limited liability on its members. As with other incorporated vehicles, a company exists as a separate legal entity: it is able to borrow money, enter into contracts and hold assets in its own name. Limited companies are governed primarily by the Companies Act 2006.
LaunchPad enables you to set up a Company limited by shares.
The members own shares in the company, and if the company is wound up, the maximum amount that they will be liable for is the amount payable for the shares.
A company operates with a two-tier management and governance system: members will make the most important decisions regarding the company such as changing the governing documents and winding up, whilst the directors will carry out the day-to-day running of the company.
A company’s directors owe a duty to the company to act in its best interests and to exercise reasonable care. They may be liable to third parties if they carry on trading when the company is insolvent. Liability insurance can be taken out to cover directors for some risks.
The governing document of a company is known as the articles of association. The company’s articles of association give details of the company’s internal management affairs, the running of the company and its liability.
Companies represent a universally recognised corporate vehicle, and provide for transparency since company documents are available for public inspection. A company needs to file annual accounts (containing the directors’ report) as well as an annual return detailing membership and directors, and other key information. Filings are administered by Companies House – the registrar of companies within the UK. Copies of any special, extraordinary or certain types of ordinary resolution of the members must also be sent to Companies House.
Community Interest Company
The Community Interest Company (CIC) was launched as a ‘custom-made’ vehicle for social enterprises in 2005. It was a type of company designed for social enterprises that want to use their profits and assets for the public good. It is suitable for a business with primarily social objectives, where the surpluses are reinvested in the business or the community rather than being driven by the need to make profits for the benefit of the members.
LaunchPad enables you to set up a CIC limited by either Shares or Guarantee.
In the case of a CIC limited by Guarantee, the members of the company give a guarantee for a nominal sum such as £10, which will be the maximum amount that they will be liable to contribute if the company is wound up. With a CIC limited by shares, dividend payments are possible - but restricted by a dividend cap. This means that there is a maximum amount that can be paid on each share regardless of how well the CIC is performing. CICs are subject to dual regulation by both the CIC Regulator and Companies House. They have the same governing documents as a normal company and are generally subject to the same procedures. A CIC exists as a separate legal entity and has the same two-tier management as a normal limited company.
A main principle of a CIC is the ‘asset lock’ – assets, cash and property can only be used for the stated community purpose. Organisations must name another ‘asset-locked’ body to receive any surplus assets upon winding up. If no such body is named, the CIC Regulator will award the assets to an asset-locked body which has the most similar objects.
CICs must satisfy the ‘Community Interest Test’, demonstrating that a reasonable person would perceive their activities as being in the interests of the community. The relevant community must not be an unduly restricted group or have political motives. Being a CIC may be viewed as a badge of commendation: the title proves the company will use its profits and assets for the public good and is a reassuring brand which third parties can feel confident in engaging with.
Detailed information and guidance notes can be viewed here.
