A Private Limited Company is a type of company that offers limited liability protection to the company’s owners and is easy to set up and manage. This article will provide a brief overview of what a private limited company is, its benefits, and how to set one up.
What Is a Private Limited Company
A private limited company is one of the most common business structures in the UK and is used by many small businesses. In its basic form, it works by having a share capital with two types of shareholders: at least one “ordinary” or public shareholder with unlimited liability and between two to fifty-one “privileged” shareholders who have limited liability.
Privilege is given to those shareholders who own shares that do not carry the right to vote on decisions within the company. These shareholder rights are very similar to those of a public limited company (plc), although there may be some limits on their freedom to transfer shares and dividends may only be paid at the company’s discretion. And when looking at the advantages and disadvantages of a private limited company, it seems obvious why it looks like the best choice for any entrepreneur out there. It offers limited liability protection to its owners and it’s also easy and inexpensive to set up and run, there are no yearly reports or AGMs, it’s simple to issue shares as the company only has one class of stock, which is not liable for capital gains tax (CGT) and the profits can be retained within the company and taxed at only 10% (or 21% in some cases) instead of 50%.
On the other hand, the only disadvantages are that it’s not possible to raise capital by offering shares (except for the ordinary share), and taxation.
How To Set Up A Private Limited Company
Setting up a limited company is quick and easy, but it’s worth getting professional advice to make sure you are doing it correctly. The basic forms needed are a memorandum of association, articles of association, consent letters from the shareholders, the nomination of directors, application for a company number, and a certificate of incorporation.
The Memorandum of Association is the document that states what your company will carry out in its business activities and how it will be structured, with the Articles of Association being a more detailed version of this. The company’s directors must also appoint an Accountant who will prepare financial statements, including preparation of the annual accounts.
Once these documents have been filed, you will be issued with a certificate of incorporation which is also referred to as the company’s “charter” or “articles of association”. This document includes information on your registered office address and its objects, any restrictions on share transfers, the amount paid up by shareholders, how many shares each shareholder can hold, and whether the company has an issued share capital or not.
Types of Private Limited Companies
Different types of private limited companies include one-person companies, minimum capital companies, and dormant companies.
One Person Company
It is formed by just one individual and there doesn’t need to be any other shareholder or director involved. This type of business can’t have a share capital but it does provide its owner with protection against the creditors if necessary. The process of incorporation is straightforward and quick, but annual accounts must be filed.
The Minimum Capital Company
This one only needs to have a pound in share capital and it can also be incorporated within one day. This type of business doesn’t require any member or director and you won’t need to prepare financial statements either – all you will need is an accountant if this is the case. It’s advisable to have a solicitor assist with the process of incorporating.
A Dormant Company
It is formed by an individual or sole trader for mostly private purposes and it doesn’t carry out any business activities. This type of company can be incorporated within one day and doesn’t need to keep annual records or file accounts, while the only requirement is that you appoint an accountant if necessary.
Comparison to Other Structures
Limited Liability Partnerships (LLPs) are a similar business structure to private limited companies, but they generally need more than one partner.
Public companies are different in the sense that they offer shares to the public and have an unlimited life span. Public companies also usually have regular reporting requirements, including annual reports and accounts.
For sole traders, the process of setting up a limited company is more expensive than just registering themselves as self-employed or trading under their own name.
The key benefits of using a private limited company include increased credibility, protection from creditors, an easier time raising finance, and ease of transfer. If you need to raise finance for your business, having share capital will make it easier to approach potential investors. If you want to guarantee no personal liability, then incorporating your business within a limited company is the best way to do this.
Any changes in directors or members must be notified to Companies House because this could invalidate the company’s registration. The same applies to any change of registered office address. To ensure that your company complies with the law and its obligations, all private limited companies must file annual accounts and returns.
If you want to incorporate a company then it is possible within just one day and you can do this by filing the necessary paperwork on the Companies House website. It’s also advisable to seek help from an experienced adviser to ensure that you adhere to the necessary regulations. Although the process is straightforward, it’s always best to seek professional advice to avoid any issues in the future.
A private limited company is one of the most common business structures in the UK. It offers limited liability protection to the company’s owners and is easy to set up and manage. The key benefits are increased credibility, protection from creditors, an easier time raising finance, ease of transfer for sole traders, etc. If you want to guarantee no personal liability, then incorporating your business within a limited company is the best way to do this.