Private Limited Companies, Advantages & Disadvantages of Private Limited Companies
It is a business that is owned by a group of shareholders and each of those shareholders is protected by what is known as a limited liability.
What Does Limited Liability Mean?
Limited liability is a legal protection that shareholders of all limited companies enjoy. It means that in the event of business failure should the business become bankrupt; the owners of the Private Limited Companies are protected from any debts that the business may leave behind.
Although the business’s assets can be used in order to try and recoup any debts that are business leaves behind, and although the shareholders will lose any capital that they have invested into the organization, should the business be declared bankrupt and the assets of the organization are not sufficient to cover all of those debts, banks are not allowed to then go after the personal assets of each of the shareholders.
Advantage of Private Limited Companies
The number one advantage of running your business as a private, limited company is that it is easier to raise capital for your organization. So capital is money finance that’s invested by the owners of the business and because PLDs have the facility to take the new shareholders and expanding the number of shareholders owning the business.
It gives them the facility to, bring fresh capital into the organization. Obviously, that can help fund growth and expansion without the business happened to rely on loans and borrowing.
The second advantage is that shareholders’ own personal wealth is protected in the event of business failure, which makes it a very attractive proposition to potential investors. Should you become a shareholder in Private Limited Companies, you do so know that you can lose capital that you invest in the business, but that that is the extent of your liability.
And should the debts of the business outweigh the assets of the organization, your own personal possessions cannot be used to try and pay of the business’s debts.
Another advantage that Private Limited Companies have only really applied for businesses that are a little bit larger in the scope of making slightly more significant profit levels, but that’s that they pay corporation tax rather than income tax, which sole traders and partnerships pay.
The next advantage of Private Limited Companies is, when we compare Private Limited Companies to the largest form of business ownership That of PLC the advantages, we can control who buys shares in Public Limited Company, in case a new shareholders join the business, it can only be allowed by the agreement of the existing shareholders that it can be a vetting process, a selection process.
Shareholders convene to people buying shares in their organization if they wish, which you cannot do with a public limited company because shares are traded in the stock exchange, existing shareholders have no control over who else buy shares in the business of being able to maintain that control over who your fellow shareholders will be is another advantage of the organization.
The final advantage associated with being a Private Limited Companies is that, rightly or wrongly, they may be perceived by potential customers and the public at large as being a more reputable organization. Because of the processes of incorporation that shareholders have to go to when forming a private, limited company. This is because they have to register the company with the government.
There is a perception that private limited companies are more trustworthy, more reliable because they’ve been formally registered and incorporated with the government. It is important as more reputable perception may help attract customers may give suppliers more confidence when doing business with you and may have advanced is for the shareholders when trying to build the brand for their organization.
Limitation of Private Limited Companies
The first one is that although private limited companies can have as few as one shareholder, most will have multiple owners, each owning a share of the organization, which means that profits will have to be split multiple ways.
Some larger private limited companies may have 15, 25, 50 different shareholders running the LTD together and that obviously dilute how much profit each of those shareholders will receive.
Added to that, there is the greater bureaucracy and rules, procedures that LTD’s have to go through when forming that organization. They have to go through the process of formally logging the business with the government.
There’s documentation that needs to be submitted to companies’ House to register the business and each of the shareholders so that they have limited liability.
There are ongoing tax obligations that need to be filed with the revenue of companies, House added, to which there is the fact that public records mean that anybody is entitled to see the financial accounts of Private Limited Companies, anybody can request to see your balance sheet or your profit and loss accounts.
Compare Private Limited Companies to public limited companies. We’ve got the limitation of who we are able to sell shares, too, because when operating as a public limited company, we can trade shares at the stock exchange.
Selling shares to anybody around the world, meaning that the potential number of investors we have in our organization is really quite vast and the amount of capital that we might have to generate from that is significant.
Private, limited company. The law states that shares are only allowed to be traded privately. Two people are already known to the shareholders so often that they tend to be friends and family of the shareholders that originally found the organization.
Or if they’re lucky enough to come across wealthier individuals that my actor’s investors into their LTD during the running of their business, they can invite them to be shareholders as well.
But they’re unlikely to raise as much capital through that arrangement as PLC’s are able to raise through trading shares on the stock exchange during their initial public offering or stock market flotation.