Ownership of Private Limited Companies (Ltd)

What is a Private Limited Company (Ltd)?

• Business owned by a group of shareholders.
• Shareholders enjoy limited liability.

Advantages of Private Limited Companies

Limited Liability

• Shareholders are protected from personal debts in the event of business bankruptcy.
• Only the capital invested and business assets are at risk.

Easier Capital Raising

• Ability to take on new shareholders helps raise capital.
• Facilitates growth and expansion without relying on loans.

Tax Benefits

• Corporation Tax: Paid from the first pound of profit at a rate of 19%.
  • Lower than income tax rates for sole traders and partnerships (20%+).

Control Over Shareholders

• Shareholders have control over who buys shares in the company.
• Allows a vetting process and agreement from existing shareholders.

Perception and Reputation

• Seen as more reputable due to formal registration with Companies House and Inland Revenue.
• May attract customers and suppliers by being perceived as trustworthy.

Limitations of Private Limited Companies

Profit Sharing

• Profits must be split among multiple shareholders.
• Larger Ltds may have many shareholders, diluting profit.

Tax Implications

• Smaller profit Ltds miss out on the tax-free allowance (£12,500) available to sole traders.

Bureaucracy

• Formal registration procedures required, including documentation for Companies House.
• Ongoing tax obligations and public financial records.

Limited Share Trading

• Shares cannot be traded publicly like a PLC; only privately to known individuals.
• Limits potential capital raising compared to public limited companies.

Comparison with Other Business Types

• Sole Traders/Partnerships: Easier tax conditions for lower earnings but lack limited liability.
• Public Limited Companies (PLCs): Greater capital raising potential but less control over shareholder base.

Summary

• Private limited companies offer significant benefits like limited liability and controlled shareholder base.
• However, they face limitations in capital raising and increased regulatory requirements compared to other business forms.
• Understanding these advantages and limitations is crucial for making informed business decisions.