What is a private limited company?

If you’re thinking about forming a company, you need to know about the different structures that are available to you. In this post, we’re going to look at the private limited company, and the company types that fall under this name. Let’s get started. 

The private limited company

Private limited companies are by far the most common type of business structure in the UK. They can range from a single-person operation with no employees to massive companies with multimillion-pound turnovers.  

In the UK, a private limited company may be formed as either limited by shares or limited by guarantee. So, if you have an idea that you think would make a great business, then a private limited company might just be the right choice for you. Now, we’re going to explore what it means to have a private limited company.  

What does ‘private’ mean?

A private company is one that is privately owned by its founders or by a group of private investors. Shareholders of a private company must be invited by the company to purchase shares. This is in contrast to a public company that has the ability to sell either a portion or all of itself to the public.  

Whilst a public company may be the best option for some, it’s important to remember that they have greatly increased reporting and statutory requirements. Plus, they must have a minimum issued share capital of £50,000, with at least one-quarter of that being paid up in full. This is not the case for private limited companies that have no minimum capital requirements.  

The ‘limited’ in a limited company 

Will my company be limited by what it can do? Absolutely not! In this instance, ‘limited’ refers to the liability of the shareholders. When you set up your company, you will decide how many shares each shareholder will have and the nominal value of each of these shares.  

The shareholders are then only liable up to the total nominal value of these shares. For many companies owned by one person, they will decide to hold one share of £1, keeping their liability low.  

• How to change from sole trader to limited company

In contrast, a sole trader would have unlimited liability and could be pursued directly by creditors. A limited company is considered its own legal entity that is separate from its owners. A company can enter into contracts and is held accountable for its liabilities. 

Companies limited by shares vs. limited by guarantee

Private limited companies can be categorised as either limited by shares or limited by guarantee. Generally speaking, limited by shares companies are for-profit and limited by guarantee are for non-profit ventures.  

• Companies limited by guarantee or shares – what’s the difference?

As both structures are under the umbrella of private limited companies, they provide the owners with limited liability.

Advantages of a limited company

Whilst many people still operate as a sole trader, it may be worth considering a limited company for the advantages that it can offer, such as: 

• Simple set up – the company formation process is quick, with companies often formed in as little as 3 hours
• Limited liability for the owners – personal assets are not at risk 
• Improves image – a business with a corporate identity gives the perception of a much larger operation 
• Allows for succession – private limited companies can have an infinite lifespan 
• Protection of your company name 
• Better access to funding, as you can bring in investors 
• Tax efficiency – corporation tax is at a lower rate than personal tax 

These are just some of the many benefits of having a company. If you’re ready to take the next step and form your own private limited company, let us help you on this journey. 

We hope you found this blog post helpful. If you have any questions – about private limited companies or company formations in general – please leave a comment and we’ll get back to you as soon as possible.