Pros and cons of private limited company

Starting a business and keeping it on the flow for more than a couple yars is hard work. It requires a lot of attention and effort. During the moment of creating a business and every single next day, business people keep asking themselves many questions and fight self-doubdt. One of such torturing questions is  is whether they have to incorporate a Private Limited Company or not? Let’s find out together with Hoxtonmix what PLC is, and pros and cons of private limited company

Photo by Scott Graham on Unsplash

What is a limited company?

It’s better to start with a general definition of what Private Limited Company is. A limited company is a type of business that has its own legal identity apart from its owners. This means that the company’s assets, debts, and income are completely different from the business owners’ personal assets.

 

The name “limited company” comes from the fact that responsibility is limited.

 

Limited liability means that any liabilities, like bills, are limited and not the personal responsibility of the people in the business. So, the people who own and run the company have less to worry about, and if the company fails, their personal assets are safe.

Types of Limited Companies

Limited companies are a prevalent business structure in the UK, second only to sole traders. The choice of the limited company structure depends on factors like the number of shareholders, their responsibilities, and public involvement. Let’s delve into the primary types of limited companies.

Private Limited Company – Limited by Shares (Ltd.)

A private limited company – limited by shares is a common model where the public cannot buy shares. The shareholders’ liability corresponds to their investment percentage, making them responsible for the same percentage of the company’s debts. This structure is notably used by Virgin Atlantic.

Private Limited Company – Limited by Guarantee (LBG)

Typically for non-profit organizations or charities, a private limited company – limited by guarantee doesn’t have shareholders. Board members, acting as guarantors, pay to cover business debts when necessary. An example is Oxfam.

 

Public Limited Company (PLC) 

A public limited company is like a private limited company, but shares are open to the public. Increased legal requirements accompany this structure, such as needing two directors, shareholders, a company secretary, and at least £50,000 of issued share capital. Barclays is an example of a PLC.

Limited Liability Partnership (LLP) 

An LLP consists of partners instead of shareholders. Each partner holds equal responsibility for the business, including debts. Unlike other limited companies, partners can directly manage the business. For instance, Deloitte & Touche is an LLP.

Private Unlimited Company

Private unlimited companies are not required to submit annual returns or financial statements, maintaining their privacy. All shareholders hold equal responsibility for business liabilities, and the debts are shared if the company goes bankrupt. This structure is rare, with Credit Suisse International being an example.

 

Advantages of a Limited Company 

Having figured out what the private company is and why types of such business are out there, it is time to get to know the pros and cons of private limited company. Limited companies can be great because they allow business people to be efficient. Let’s find out whether it is like that in practice.

Legal Entity

A private limited company is treated as a different legal body from its members. This keeps the company’s assets and debts separate from those of its directors. This makes sure that management is held responsible for company losses, and it also keeps the members’ personal funds safe.

Limited Liability

Members of a private limited company have limited responsibility, which means that they don’t have to use their own assets to pay the company’s bills. The responsibility is limited to the value of the unpaid shares, reducing each person’s financial risk.

Perpetual Existence 

Private limited companies have a ‘perpetual succession’, i.e., an uninterrupted life until officially disbanded. No matter who joins or leaves the company or who dies, the business keeps going. This provides security for the business.

Credibility and  trustworthiness 

Lastly, private limited companies are often more trustworthy because their financial records and information about how they were formed can be found on government websites. This openness can bring in investors, financial institutions, and customers, which can help the business grow and expand.

 

Disadvantages of a Limited Company 

Now, let’s take a look at the opposite side – the cons of having a private limited company. We highly recommend paying attention to both advantages and disadvantages for you to make an impartial decision in the future.

Registration and making information public

businesses House is where private limited businesses must sign up. This process makes sure that your business name is special, but it also has some problems. First, you have to pay to sign up, which adds to the costs of getting started. Second, important information about your business, like its address and who runs it, becomes part of the public record. Businesses that care about their privacy might worry about this. 

Tricky accounting 

A private limited company’s financial management is more difficult than that of a sole trader. As the director, you should keep accurate and up-to-date records of tax returns, spending, and other financial transactions. Usually, this means that you need to hire an accountant, which is an extra cost for your business.

Making decisions together

Most of the time, directors and shareholders share control in a private limited business. Based on how many shares they own, these people can have an effect on how the business is run. If you like making decisions on your own, this joint power might be a bad thing. 

Strict compliance 

Another problem is that there are strict management rules that must be followed. Your responsibilities go beyond normal business tasks. For example, you have to take notes during meetings and write down important choices.

Limited access to the stock market

Lastly, private limited companies have trouble getting money because they can’t sell a lot of shares to the public because of how they are set up. This ban limits their access to the stock market, which makes it harder for them to raise money.

 

The Verdict

Today, we compared pros and cons of private limited company. Use this article as a guide to decide which way work for you in the business world. If you have questions, consider turning to Hoxton Mix for help.

 



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