a private limited company

is a corporate structure owned by its shareholders and it has a separate legal entity from its owners. Therefore it limits the shareholders' liability to pay the company's debt, to the unpaid value of their shares. As most shares are fully paid when they are issued it is rare that the shareholders are held liable for the company's debt. This normally means that an individual's personal assets are safe.

Via a dividend the shareholders share the profit generated through the company's operations. Shares cannot be offered to the public and there is no minimum share capital requirement.

  • Limited companies offer limited liability to the shareholders as the company is a separate legal identity from the owners. Therefore the shareholders normally have no personal liability beyond the amount paid for their shares. For this reason most new businesses are structured as limited companies. *
  • An element of prestige is created by forming a limited company. The corporate identity often appears more professional, more established, and both consumers and creditors know that they are legally registered and regulated. This leads to the perception that a limited company is more trustworthy than sole traders.
  • It is usually much easier and more likely to sell a limited company than a sole trade business.
  • There is an opportunity to raise funds by issuing shares.
*
However limited liability may no longer exist if the director/s act illegally. It is one of their responsibilities to act within the law. Banks may also sometimes require security and personal guarantees when money is borrowed from them and this may counteract some of the advantages gained by having limited liability. Although this will still prevent personal liability from other situations such as being personally liable for the injury of a consumer while using your products.
  • There is less privacy than a sole trader. Certain business information must be filed at Companies House and as a result they are available for inspection by members of the public, for example the company's Annual Accounts.
  • Administrative expenses will be higher than a sole trader to ensure compliance with formalities of company law, such as preparation of board minutes and shareholder resolutions. As well as dealing with the extra returns and administration relating to running a company.
  • Professional accountancy services are normally required to assist with the preparation and filing of accounts and tax returns.

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