Private limited company

Private Limited Company: Characteristics

  • A Private Limited Company (Ltd) is a type of business structure where the company shares are not available to the general public.
  • The company is owned by shareholders who are usually family members or close friends.
  • The identity of a private limited company and the owner are legally separate, unlike sole traders.
  • Private limited companies have limited liability, meaning the owners are only held responsible for business debts up to the amount they have invested in the company.
  • This type of business requires a formal procedure to set up, including registration with Companies House.

Private Limited Company: Advantages

  • Having limited liability is a major advantage, protecting shareholders’ personal assets from the company’s debts.
  • Private limited companies often have greater stability and longevity as ownership can be transferred to others.
  • These companies may find it easier to raise finance through selling additional shares to existing shareholders or new investors.
  • The business can benefit from greater resources and credibility in comparison to a sole trader or partnership, which can help when securing contracts or credit.

Private Limited Company: Disadvantages

  • Setting up a private limited company can be a costly and complex process as it involves legal procedures.
  • The requirement to publish annual accounts can disadvantage some businesses as this information is available to competitors and the public.
  • There are restrictions on selling shares, which means shares cannot be sold to the general public and the shareholders might find it hard to sell their shares.
  • The company may incur higher accountancy fees due to more regulations and the complexities of running a private company.

Private Limited Company: Responsibilities

  • Private limited companies must register with Companies House and file annual accounts.
  • The details of the company’s directors, shareholders and company secretaries must also be registered.
  • The company has a responsibility to ensure a percentage of profits is given to shareholders as dividends.
  • They must adhere to legal obligations, such as health and safety regulations and employment laws.
  • If the company’s turnover is above the VAT threshold, the company needs to register for VAT.