One of the most common questions we are asked is the difference between an LTD and a DAC.
Most of the confusion is that people think a DAC is the new company type but actually it is the closest thing to an LTD company. As you can see in the chart below it requires 2 directors, an objects clause, a memorandum and articles of association and must hold physical AGM.
The LTD company is a new company type. Because it has the suffix LTD, most people assume it is the same company type they already have. The LTD is the new simple compliance company and is going to be the most common company type for trading companies.
The highlight change between an LTD and a DAC is an LTD may have only one director which may be very beneficial for a small or medium sized company. The sole director cannot act as the company secretary so a second person is still required. They will have less onerous obligations as a Company Secretary than acting as the second director. The Secretary may also be a company and this is something we as a company secretarial advisory firm can provide or the accountant may also provide this service to the client if they don’t have a separate person to act as Secretary.
Before setting up a new company, it is important to chat with the directors & shareholders to understand what activities the company will be carrying out to determine the best company type they require. In most cases it will be the LTD company, however if they are carrying out a specific activity or are required to be a DAC then that is the appropriate company type.
| Company Limited by Shares (“Limited”) | Designated Activity Company (“DAC”) |
|---|---|
| Must end in the suffix Limited or LTD | Must end in the suffix Designated Activity Company or DAC |
| Minimum of 1 director | Minimum of 2 directors |
| 1 – 149 shareholders | 1 – 149 shareholders |
| No objects clause – full and unlimited capacity | Capacity limited to the objects clause in the Memorandum |
| Company Secretary cannot be the sole director | Secretary may be one of the directors |
| May dispense with holding the AGM | Cannot dispense with holding the AGM |
| No requirement for an authorised share capital | Must have an authorised share capital |
| Cannot list debts or securities | Can list debts & securities |
| Cannot be a credit institution or an insurance undertaking | Can be a credit institution or an insurance undertaking |
Please Note:
Our CLS Insights aims to bring you practical information and news on Company Law and Company Secretarial. We cover the topics that matter to your business and give practical tips and also the benefit our experiences. Please remember this article is a guide and legal advice should always be obtained. If you have any queries please contact one of the team and we would be happy to help.
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