What is a private limited company?
If you’re considering forming a company, it’s important to understand the different structures available to you. In this article, we’ll focus on the private limited company and the various company types that fall under this category.
The private limited company
Private limited companies are the most popular business structure in the UK. They can vary greatly in size, from a single-person operation with no employees to large corporations with multimillion-pound turnovers.
In the UK, entrepreneurs can form a private limited company either as limited by shares or limited by guarantee. If you have a great business idea, a private limited company might offer many benefits. With a private limited company, owners enjoy limited liability, which protects personal assets in case the business faces financial difficulties. Now, let’s explore what it means to run a private limited company and explore why this might be the ideal choice for your business.
What does ‘private’ mean?
A private company is owned by its founders or a group of private investors. In this structure, shareholders are invited by the company to purchase shares, meaning shares are not publicly available. On the other hand, a public company differs significantly. It can sell part or all of its shares to the general public through the stock market.As a result, this allows for wider ownership and more opportunities to raise capital. However, public companies also face increased regulatory scrutiny and less control over decision-making. In contrast, private companies retain more control and privacy.
While a public company may be beneficial for some businesses, it comes with significantly more reporting and statutory obligations. For example, public companies must maintain a minimum issued share capital of £50,000, with at least one-quarter fully paid up. On the other hand, private limited companies are not subject to any minimum capital requirements, making them a more flexible and simpler option for many business owners.
The ‘limited’ in a limited company
Will your company be limited by what it can do? Absolutely not! In this case, “limited” refers to the liability of the shareholders, not the company’s scope of operations. When you set up your company, you decide how many shares each shareholder will hold and what the nominal value of those shares will be.
The shareholders are only liable for the total nominal value of their shares. For example, in many single-owner companies, the owner might hold one share worth £1, which helps keep their liability minimal.
In contrast, a sole trader faces unlimited liability, meaning creditors can pursue the sole trader’s personal assets to recover debts.By forming a limited company, you create a separate legal entity distinct from its owners. As a result, the company can enter into contracts, own assets, and take on liabilities, but the shareholders remain protected, with their personal liability limited to their shareholding.
Companies limited by shares vs. limited by guarantee
We can categorize private limited companies as either limited by shares or limited by guarantee. Generally, limited by shares companies are set up for profit, while limited by guarantee companies are typically used for non-profit ventures.
Since both structures fall under the umbrella of private limited companies, they provide their owners with limited liability, meaning the owners’ personal assets are not at risk if the company faces financial difficulties.
Advantages of a limited company
While many people still choose to operate as sole traders, it’s worth considering a limited company for the numerous advantages it offers, such as:
- Simple setup – Forming a company is quick, often taking as little as 3 hours.
- Limited liability for the owners – personal assets are not at risk
- Improved image – Having a corporate identity creates the perception of a larger, more established business.
- Allows for succession – A private limited company can continue indefinitely, allowing for smooth succession.
- Company name protection – Registering a limited company helps secure your business name.
- Better access to funding – It becomes easier to attract investors.
- Tax efficiency – Corporation tax rates are lower than personal tax rates, offering greater tax advantages.
These are just a few of the many benefits of forming a company. If you’re ready to take the next step and create your own private limited company, let us guide you through the process and help you every step of the way.
Do you have any other questions?
If you’re curious about setting up a private limited company in the UK, or if you need more details on the benefits, legal requirements, or the differences between various company structures, feel free to reach out to us via support@startxpress.io.
We’re here to guide you through the process of forming your business. Whether it’s understanding limited liability, choosing between shares and guarantee, or exploring tax benefits, don’t hesitate to reach out! Our experts are ready to assist you with all your inquiries related to UK business formation.
For more details, check out the Startxpress Help Center and Blog.
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