Private limited company: everything you need to know

What is a private limited company: Definition

A private limited company is one in which the members own the company privately. In the case of a Private Limited company, the members' liability is limited to the amount of shares that they own. A private limited company's shares cannot also be exchanged.

What are the advantages of setting up a private limited company?

A private limited company has two major advantages. For starters, it's a separate legal entity, which means you won't be personally liable if it goes bankrupt — either financially or legally. When it comes to running your company, forming a limited company makes it less personal because you can simply share responsibilities with others.

What does ‘limited liability’ mean?

Limited liability is a legal structure in which a corporation's loss is limited to the amount invested in a partnership or limited liability company (LLC). The members' liability is limited to the quantity of shares they own. For example, if the company suffers losses in any way, the shareholders are only liable for the shares they own. The shareholders' personal assets are not in jeopardy.

How to form a private limited company? Who can set it up?

If you want to form a private limited company, you need a minimum of two directors. Shareholders are the owners of private limited companies, and each owns a specific number of shares in the business. Shares are what make up the capital of a private limited company. This means you can set up a limited company by yourself (in which case you would own 100% of the shares) or with others, dividing the available shares among the shareholders.

As per legislation, a private limited company is required to have a registered office address.

What are the benefits of a private limited company?

Setting up a private limited company has several advantages, and while it requires extra paperwork, a formations agent can make the process simple and affordable.

1. Ownership

Shares in a Private Limited Company, on the other hand, can be sold or transferred by the owner at any time but cannot be sold to the general public. As a result, a private limited company has fewer shareholders, resulting in more cooperation, less complexity and uncertainty in decision-making and management.

2. Legal Requirements

Following the formation of a company, legal compliance is a critical component. A private limited company has fewer legal obligations than a public limited company.

3. Collaboration on the work

With the potential to bring in a large number of people, you'll be able to profit from the unlimited expertise and abilities of others, which will help you keep a clear mind for business.

4. Management and Decision-Making

Because the number of shareholders in a private limited company is small, decision-making is simple and straightforward.

5. Tax reduction

A private limited company also has greater tax-deductible expenses and allowances that can be used to offset profits. You'll find tax advantages in addition to lowering your personal liability. This is yet another benefit of forming a private limited company. You may be protected from higher income tax rates if the company pays Corporation Tax on taxable profits.

6. Pressure in the stock market

Because private companies are not subject to the stock market's pressures, you don't have to be concerned about shareholder expectations or meddling as long as they follow the law.

7. Perpetuity

Another benefit of a Private Limited Company is that it can continue to operate even if the owner dies or leaves the company, nothing changes.

What are the 2 kinds of private limited companies: by shares or by guarantee?

A private limited company can be either limited by shares or limited by guarantee.

For a private company limited by shares, each shareholder's liability is limited to the original value of the shares they were issued. Limited-by-shares companies are typically profitable businesses. This means that your company has shares and shareholders and is allowed to keep any earnings it makes after paying taxes.

A private company that is limited by guarantee has members who act as guarantors. These members make a pre-determined contribution to help the company in times of need. The majority of limited-by-guarantee companies are 'not for profit.' This means that your company has guarantors and a "guaranteed amount"; and reinvests revenues back into the company.