A Few Key Differences in US and UK Company Law
In both the US and the UK, operating in corporate form offers limited liability for members and shareholders. There are, however, a few significant differences in how companies are formed in the two countries, as well as in the post-formation requirements these companies face. Here are a few differences of note:
- Centralized versus decentralized registration. Whereas in the UK Companies House serves as a central registry for companies, the US has no such central registry. Instead, corporations are established under the laws of individual states. If the corporation transacts business in a state other than its state of incorporation, it typically must also register in the state or states in which it transacts business. Unfortunately, each state defines for itself what activities within their borders trigger this registration requirement. Generally, isolated transactions or the mere selling to customers through independent contractors will not trigger this registration requirement.
- Privacy. Whereas, in the UK, limited companies must file annual accounts, there is no requirement in any US state for the filing of annual accounts. The filing requirements vary from state to state. However, in many states all that is required is an annual or biennial report of the corporation’s officers and directors, with no disclosure of the shareholders or members.
- Unlimited companies. The UK recognizes unlimited companies, the members of which have unlimited personal liability in the event that the company cannot pay its debts. In the US, no analogue exists. All companies, once formed, have limited liability, protecting members or shareholders from liability for the corporation’s debts. (A US court can – in very rare circumstances – pierce the corporate veil and hold owners personally liable if they fail to respect the corporation’s separate existence and/or they use the corporation to perpetrate a fraud.)
- Public versus private companies. In the UK, limited companies can be either public or private. A public limited company must meet minimum issued share and paid up capital requirements before being issued a certificate of incorporation as a public company. In the US, in contrast, the distinction between a public company and a private company is not determined at incorporation. Instead, the term “public company” is used in the US to describe a publicly traded corporation. Virtually any corporation can seek to go public, typically through an initial public offering (or IPO).
- Director Disqualification. Under the UK Company Directors Disqualification Act 1986, a court may disqualify a person from acting as a director of a company for a period of up to 15 years. The US has no similar procedure. Instead, one’s right to serve as a director is left solely to the discretion of the shareholders, who are presumed to have sufficient knowledge and insight not to elect directors who are untrustworthy.
- Dissolution. Generally, in the US, shutting down a corporate entity is painless and simple. A US corporation is typically dissolved through the simple act of filing articles of dissolution. There is no requirement – such as exists in the UK on an application for voluntary strike off and dissolution – to demonstrate that the company has ceased to operate for any particular period of time, nor is there any requirement that prior notice be provided via any public record or that the public be permitted to object to the dissolution.