[Music] this is taking the beers the channel for a level business students and their revision in this video we are going to be looking at the ownership type of Private Limited companies or Ltd so let's begin by examining what an Ltd actually is well it's a business that is owned by a group of shareholders and each of those shareholders is protected by what is known as limited liability which is really the first of our advantages that we may need to know about when were answering exam questions on private limited companies so limited liability is a legal protection that shareholders of all limited companies enjoy and it means that in the event of business failure should the business become bankrupt the owners of the Ltd are protected from any debts that the business may leave behind so although the business's assets can be used in order to try and recoup any debts that a business leaves behind and although the shareholders will lose any capital that they have invested into the organization should the business be declared bankrupt and the assets of the organization are not sufficient to cover all of those debts banks are not allowed to then go after the personal assets of each of the shareholders a shareholders own personal wealth is protected in the event of business failure which makes it a very attractive proposition to potential investors should you become a shareholder in an Ltd you do so knowing that you can lose capital that you invest in to the business but that is the extent of your liability and should the debts of the business outweigh the assets of the organization your own personal possessions cannot be used to try and pay off the business's debts in addition and advantage of running your business as a private limited company is that it is easier to raise capital for your organization so capital is money finance that's invested by the owners of the business and because Ltd's have the facility to take on new shareholders and expand the number of shareholders owning the business it gives them the facility to bring fresh capital into the organization now obviously that can help fund growth and expansion without the business having to rely on loans and borrowing another advantage that private limited companies have only really applies for businesses that are a little bit larger in scope and making slightly more significant profit levels but that's that they pay corporation tax rather than income tax which sole traders and partnerships pay so with corporation tax you pay it from the very first pounds profit you make but the rate of corporation tax you pay here in the UK is 19% now that 19 percent figure is lower than the lowest rate of income tax that soul traders and partners will pay of 20 percent on any funds they earn over 12 and a half thousand pounds the income tax has different brackets or thresholds where the amount of tax that you pay increases as you earn more money so income tax levels can rise to 30 percent if sole traders and partnerships earn over a certain amount or up to 40 percent if they earn quite significant amounts of profit that arrangement isn't the case for corporation tax the rate of tax remains at 19 percent regardless of whether you make one-pound profit a million pounds profit or 50 million pounds profit so for businesses that are starting on a slightly grander scale and expect profits to be more significant in the hundreds of thousands it will be financially beneficial to them to pay 19% of their profits to the Inland Revenue as tax rather than pay an increasing amount of tax the more they earn even though they get twelve and a half thousand pounds tax-free the next advantage of Ltd's is really when we compare Ltd's to the largest form of business ownership that of PLC's and the advantages is that in an Ltd we can control who buys shares in the organization when new shareholders join the business it's under the agreement of the existing shareholders there can be a vetting process a selection process shareholders can veto people buying shares in their organization if they wish which you cannot do with that public limited company because shares are traded on the stock exchange the existing shareholders have no control over who else buy shares in the business so being able to maintain that control over who your fellow shareholders will be is another advantage of the organization the final advantage associated with being a private limited company is that rightly or wrongly they may be perceived by potential customers and the public at large as being a more reputable organization because of the processes of incorporation that shareholders have to go to when forming a private limited company because they have to register the company with the government through Companies House and with the Inland Revenue as well there is a perception that private limited companies are more trustworthy more reliable because they are larger in scale because they've been formally registered and incorporated with the government and a reputation that more reputable perception may help attract customers may give suppliers more confidence when doing business with you and may have advantages for the shareholders when trying to build the brand for that organisation but of course there are limitations to operating as a prime it limited company as well the first of those is that although Private Limited companies can have as few as one shareholder most will have multiple owners each owning a share of the organization which means the profits will have to be split multiple ways some larger Private Limited companies may have fifteen twenty-five fifty different shareholders running the Ltd together and that obviously dilute how much profit each of those shareholders will receive in addition we mentioned that one of the benefits for larger organizations is that they get to pay corporation tax which is taxed at a lower rate than income tax but for Ltd's not earning high profit figures the owners miss out on getting to earn twelve and a half thousand pounds before they pay any tax at all which is the case for sole traders and for partnerships added to that there is the greater bureaucracy and rules and procedures that Ltd's have to go through when forming their organization they have to go through the process of formally logging the business with the government there's documentation that needs to be submitted to Companies House to register the business and each of the shareholders so that they have limited liability there are ongoing tax obligations that need to be filed with the Inland Revenue and Companies House added to which there is the fact that public records mean that anybody is entitled to see the financial accounts of an Ltd and anybody can request to see your balance sheet or your profit and loss account and also with we compare Ltd's to public limited companies we've got the limitation of who we are able to sell shares to because when operating as a public limited company we can trade shares on the stock exchange selling shares to anybody around the world meaning that the potential amount of invest we have in our organization it's really quite vast and the amount of capital that we might be able to generate from that is significant with private limited company the law states that chairs are only allowed to be traded privately to people already known to the shareholders so often that tends to be friends and family of the shareholders that are originally found the organisation or if they're lucky enough to come across wealthier individuals that might act as investors into their Ltd during the running of their business they can invite them to be shareholders as well but they're unlikely to raise as much capital through that arrangement as PLC's are able to raise through trading shares on the stock exchange during their initial public offering or stock market flotation so we've got many advantages to operating as an Ltd but we've also got some limitations and we can split those limitations into difficulties of Ltd's compared to sole traders and partnerships are smaller forms of ownership and limitations compared to public limited companies our larger organizational structure so there's the topic of Mt Dee's hopefully you'll be able to revise that one with confidence we'll see you soon keep on taking them is you you you