With insurance a problem these days what would be the best way to set up a mining company - LTD or LLP? Does anyone know of any benefits of one over the other? Would it depend on whether you employed staff as against working for yourselves within the company. Just asking because some of the mining companies are LTD whereas others are LLP.

the two alternatives are different , depending on the nature of the business. The legal status of a Partner and a Director are somewhat different.

the crucial difference is that a PLC ( as opposed to a Ltd Co ) has a defined value at any given time, defined by the total number of shares sold at a given value to shareholders who may have no other connection with, or role in, the business at all. A Ltd Co will also have had, at some point, a defined value, but the shares will not have been traded openly, instead they are held by the Directors or other company principals.

this allows a Ltd Co or PLC to raise capital by selling shares at whatever price they will fetch, against a promise or expectation of future returns, and a present ownership of a fraction of the value of the company defined by those shares.

a Director is essentially an employee, rather than a partner, in the business.


the purpose of an LLP is to allow a business to function as a professional partnership, but without the unlimited liability which a 'traditional' partnership - an ancient legal entity dating back to the days of 'cost book' companies - entails. This means, however, that an LLP cannot raise capital by selling shares to third parties, but it CAN allow someone to become a partner by 'buying in' and contributing a specified sum to the partnership.


so, if the business is likely to require initial capital or subsequent funding from third parties, the Ltd Co or PLC model is the one to use.

if the nature of operations is such that the partners feel able to fund it from their own resources, an LLP model is preferable - although may not be for other reasons.

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Thanks.

For a Heritage type project might a company limited by guarantee be a good option? Probably not for an actual working mine though.

For a Heritage type project might a company limited by guarantee be a good option? Probably not for an actual working mine though.

Good point, but needs explaining.
Under UK law there are 4 kinds of corporate entity, i.e. company, Mr Derrickman has explained extremely well about 3 of them, probably using less words than I would.
I can go on a bit!

Anyway, the 4th entity is a Company Limited by Guarantee, which would be my choice should the Cwmystwyth initiative go ahead.
When an ordinary public or private limited company is formed, there are subscribers who subscribe the initial share capital. It is usually increased later.
A company Limited by Guarantee is not formed on subscription but on guarantee. The guarantors undertake to meet the companies liabilities in the event that it goes down up to a predetermined amount, usually a nominal value such as 1 pound.

As there is no share capital, there are no share holders and therefore no one to distribute profits to, any profits earned by the company, called “trading surpluses” go to the good cause that the company was created to benefit.
This type of company is called a non profit organisation or charitable company, however to become a proper charity it needs to register with the Charities Commission.
To be able to do this there 2 prerequisites.
First, the company has to be for the benefit of someone, this is usually in #3 of the articles of association, and here is example of the first 3.

#1 The name of the company shall be the XYZ Mines Trust Ltd

#2 The registered office shall be in England and Wales.

#3 The companies objects are for…………………………………………………
……………………………………………………for the benefit of the people of England and Wales.

Second, it has to have in the articles that the directors can not draw salaries and that their services are voluntary.
The Charities Commission can make exceptions to this, but it is rare.

Once the company is registered with the Charities Commission they can omit the “Ltd” from the letterheads.

Interestingly, as this type of company has no shareholders, one could accurately say that it has no owners, hence it could be regarded a truly independent entity!

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Roy what would you advise if 3 men wished to open a mine (coal). They would be the only ones working there and each would have invested an equal amount in the company? Remembering that insurance for working underground is a major concern in mining.

I have been following this, and other threads, started by Miner1985, and had worked out it was probably some kind of new, small, commercial operation. It sounds very interesting. Good luck with it. :thumbsup:

I didn't mention the Co limited by guarantee, because (a) I have no experience of it , and (b) I had inferred from posts elsewhere, that the question was probably about a small mining venture.

the Ltd By Guarantee format isn't suitable for a commercial venture, for reasons Roy has covered in detail - essentially, that it wouldn't have any justifiable claim in law to be a charity. Ltd Co would be the form for a venture of this kind, depending on the sources of investment; a PLC is only useful if the requirement for capital exceeds the available resources of the principal investors, because of the trade-off in loss of control and the introduction of claims on profits by third parties.

another comment that is really more relevant to Roy's Cwmystwyth project, is that a persons under 18 cannot be members of a Ltd Co. For this reason, among others, ventures such as steam railways sometimes have tri-partite structures of Society, Trust and Company. There's a book called 'The Little Wonder' about the early years on the ffestiniog which covers this in full.

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I was a member of a company limited by guarantee a few years ago. That wasn't a charity although was a non profit organisation. I don't think it is a requirement of such a company to be a registered charity (although often they are). However, this form does not seem approriate in this case.

We've been informed that some mining companies are llp's others are ltd's and others are partnership companies. So we're getting confused as to which is the best. The money would be that of the 3 men working there, if that's any help?

you really need to get specialist advice at this point. See an accountant specialising in this field. He will need to see your business plan.

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Agree - we have had a couple of meetings and have one planned for next week.

With a new venture, capital is usually quite tight and going to an accountant or solicitor can be pretty expensive but if you approach one of the enterprise agencies in South Wales, I am sure they could provide you with very sound advice free of charge. They may even give you a personal advisor free of charge
The country is awash with development agencies, enterprise zones, trusts, regeneration organisations etc and they are clambering over one another to help. It is, after all, a feather in their cap, if they can show that they have helped get a new company "off the ground" or in miner1985's case "in the ground"
And, bye the way, the very best of luck. :thumbsup:

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well, yes... I sometimes think they generate more jobs for themselves than anyone they actually help, but there's a lot of specialist advice available free, and there are some valuable benefits in terms of business rate rebates etc. depending on the area

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Roy what would you advise if 3 men wished to open a mine (coal). They would be the only ones working there and each would have invested an equal amount in the company? Remembering that insurance for working underground is a major concern in mining.

Mr Derrickman is quite right about the limited by guarantee, its obviously unsuitable for a commercial venture; I only covered it because it had been brought up in a posting.

Your choices for the scale of your operation are ordinary partnership, LLP, or private Ltd. So in effect we have gone round in a circle and back to your original question!

I have set up and run several companies in my life. Basically, a Ltd Co is a separate legal entity and I always felt that it was advantageous to keep company business entirely separate in law to my own, and to other companies that I ran. Of course then there are certain tax advantages, VAT registration if applicable etc.
The limitation of liability is possibly the most attractive advantage.

If you know the ropes you can duck and dive a bit.

As an example, this is hypothetical, honest.
Suppose someone set up a motor company to sell vehicles and a finance company to arrange the credit on vehicles sold.
Well the motor co could offer 'special finance deals' at knock down screen prices, albeit high interest charges on the loans.
Because the mark up was low the motor co would minimise its VAT liability, while the finance company could pay the motor company a high rate of commission on the hire purchase transactions, which is outside of the scope of VAT. This is perfectly legal.

Ltd companies have always been the ideal vehicles for not only fraud but also exploitation of the 'grey' areas of UK tax legislation.

As far as borrowing goes, you will probably find that any bank will require personal guarantees for the loan, such as a charge on your home or the home of one of your fellow shareholders.

Be aware that accountants charge more companies than individuals or partnerships as there is more work involved. You will also be responsible for filing an annual return with Companies House that attracts a £15 filing fee, this can now be done as a ‘shuttle’ on line.

You can set up a company on line for as little as about £25, anyone can do this. The Articles of Association are now standard for all companies, except the guarantee co which is now out of the equation.
Beware of doing this through an accountant who may charge a few hundred pounds!
You can set the company up yourself and still get an accountant to work with you, but sound them out about likely fees first. You will get a few shocks. Look for a recommendation from someone you know that runs their own business. You will have to have an accountant, you cannot submit figures to the revenue yourself for a company.

I know someone who had a business that was running down and in the last year they only made about £3,500, yet the accountant charged them £1200
So called ‘professional people’.

As far as choice goes between Ltd and LLP, I doubt that it will make much difference which you choose. LLP did not exist before the Companies Act 2006 came into force in April last year.

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I can't comment on the operation of the motor trade, but I have always felt there was a definite value in keeping my business and personal affairs separate.

I have once been able to walk away from a possible big financial problem this way. Without undue raking over of old embers, it was a situation where I had done some survey work and found myself being targeted by the main contractor for a claim which largely involved a third party - the construction subcontractor was being targeted for some remedial work and he was trying to involve anyone he could to disperse or spread liability, a common situation.

my then-business partner and I concluded that (a) we had done our part to a proper standard (b) we had no interest in the affairs of the subcontractor (c) it would be a problem for us in any future trading, if we had a history of a PI claim of that kind.

accordingly we simply wound up the company and walked away.

this isn't infallible, but if done properly, is a very valuable recourse under certain circumstances.


Roy's point about VAT is a good one. I would assume that any enterprise intended to generate enough turnover support at least 3 men would be VAT-liable?

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I rather missed the point that this was a proper working mine, sorry for the red herring 😞

Fantastic stuff though, best of luck with it :thumbup: