Companies are either limited by shares or by guarantee

This is probably the most popular organisational setup for commercial organisations, but a company can also be set up for a social purpose if it relates to social and / or environmental objectives, such as regenerating an area or providing employment and / or training for socially disadvantaged people.

A company provides limited liability for directors or shareholders in different ways depending on how it is constituted:

  • A company limited by shares (CLS) has shareholders who each hold shares in the company.  Their liability is limited to the amount of shares they hold – more shares, more liability.  A public limited company (PLC) differs from a CLS in that a PLC's shares can be sold to the general public.
  • In a company limited by guarantee (CLG), each of the members gives a guarantee for a certain sum that will be put towards the company's finances if the company is wound up.  A CLG cannot raise finance by issuing shares, nor pay dividends to its members.

Any company requires registration at Companies House and you must submit annual accounts.

Read more about companies on the Business Link website.

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This article is from the Artlaw Archive of Henry Lydiate's columns published in Art Monthly since 1976, and may contain out of date material. The article is for information only, and not for the purpose of providing legal advice. Readers should consult a solicitor for legal advice on specific matters. Artists can get free online legal information from Artquest.