Private Limited Companies (Ltd)
Introduction
- Private Limited Companies are a type of incorporated organization
- Owned by shareholders and managed by directors, selected by shareholders
- Can have as little as one shareholder, who might also act as director
Key Features
- Shareholders Ownership
- Shareholders own the company
- Possible to have numerous shareholders (20-50 typical)
- Shares Not Publicly Traded
- Shares are not on the stock exchange
- Distinction from Public Limited Companies (PLCs)
- Limited Liability
- Shareholders' personal wealth/assets are protected
- Only investments in the company are at risk in bankruptcy
Advantages
- Limited Liability
- Personal assets are not at risk, encouraging investment
- Access to Finance
- Ability to raise equity finance by selling shares
- Can also raise debt finance through loans
- Control Over Shareholders
- Less risk of conflict between owners and managers
- Avoids the issue of ownership-control divorce seen in PLCs
- Prestige Over Sole Traders
- Considered more prestigious, potentially boosting sales
Disadvantages
- No Access to Stock Exchange
- Smaller financing opportunities compared to PLCs
- Profit Sharing
- Profits must be shared with shareholders, potentially diluting returns
- Financial Disclosure Requirements
- Legal requirement to publish financial accounts
- Competitors can access financial data
- Administrative Burden
- Increased bureaucracy and administration
- Requires registration with Companies House and dealing with corporation tax
Decision Factors: Ltd vs PLC
- PLUMS Mnemonic: Profits, Limited liability, Unlimited liability, Management, Source of finance
- Source of Finance: Access to stock exchange important for financial needs
- Profit Distribution: Consider potential for higher profits with PLC
- Limited Liability: Both types provide limited liability
- Management & Control: Control over shareholders more manageable in Ltds, reducing risk of ownership-control issues
Decision Factors: Ltd vs Sole Trader
- Tax Considerations: Corporation tax vs income tax
- Higher profits may favor Ltds for a smaller tax bill
Conclusion: Understanding the structure, benefits, and limitations of Private Limited Companies can help in deciding the appropriate business form. More discussions will follow in the next session.