Private Limited Company

What is a Private Limited Company? A Basic Guide

A company is a legal entity that is formed by a group of individuals to carry out their business operations. It acts as an artificial person. You can set up a company in various ways according to the company’s jurisdiction. There are different types of limited companies. One of the most popular types of companies is a private limited company.

What comes into your mind when you think of a private limited company? If you are curious to know more about it, read till the end.

Well, in this article you will get to know about:

  • What is a private limited company?
  • Legal rights of the company
  • Advantages 
  • Disadvantages 
  • Quick sum up

 

What Is A Private Limited Company?

It is one of the most common types of limited companies. Most of them are small as there’s no minimum requirement of capital to incorporate. However, it must issue at least one share.

 It is a separate legal entity. The maximum limit of shareholders in it is 50 and it does not publicly trade shares. 

These companies earn profit from their business activities. All the business profits, liabilities and assets of the company belong to itself and the shareholders are not responsible for debts caused by the company.

However, if there is any legal dispute, directors are not held directly responsible, as directors are considered their employees. And this responsibility lies on the company. 

To set up a private limited company, you need to register it with Companies House. Bear in mind that you are subject to rules of annual filings and paying taxes.

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Legal Rights of the Company

The legal rights and responsibilities of the company are:

  • The company can enter into a contract.
  • It has a right to sue.
  • It can borrow money.
  • A company has to pay taxes.
  • It owns assets.
  • It can hire employees.
  • Freedom to work.

 

Advantages

Here are some of the advantages of setting up a private ltd company:

Separate Legal Entity

This company is a separate legal entity from its owners. And all the individuals manage and support its business; it has vast legal capacity and can own property.

 

Limited Liability

The shareholders and owners of the company will not be responsible for the company’s debts or losses. So, it protects the personal finances of shareholders and owners. 

 

Continued Existence

The existence continues even if the owner of the company dies or leaves the company or if someone legally dissolves it.

 

Raising Capital

The additional capital is raised by selling shares and it helps the company to invest and grow. If a company is at the risk of failing, in this case its investors are protected and this depends on the value of shares they hold.

 

Business Name is Protected 

Others cannot use the name of your business when you incorporate a company as it is protected. 

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Advantages and Disadvantages of private ltd company

Disadvantages

Where there are benefits, there are some drawbacks as well.

Registration Process

You must register it with the registrar of the company at Companies House and the registration process involves cost and takes a long period. Additionally, you have to come up with a new name that should not be already in use elsewhere.

 

Information of Business will be Displayed to Public

Companies House will publicly display some of your information like the name of your business, filing history and the address of your business/office. 

 

Getting Paid

There are restrictions for taking cash out of business. Drawing cash is more complicated in this company. If you are the owner or director, the company transfers the amount to you in the form of a salary or dividend payment. It requires you to register for PAYE with HMRC and need to pay annual fees.

 

Set up and Closure

The setting up and closure for this company requires considerable time. You need to register the company with the Companies House and need to inform HMRC and pay annual fees as well.

If you decide to close the company, then you need to apply, which can take three months.

 

Quick Wrap Up

Hope you have got a better understanding of the private limited company. Before you decide to set up a private limited company, you need to take careful consideration of its advantages and disadvantages and how they affect your business.

 

Disclaimer: This blog contains general information on the topic.

 

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