If you have a great business idea and have started researching how to bring it to life, you might have come across this phrase. But what is a private limited company and why might you choose to form one? Let’s take a look.
Even if you are 100% confident about your business idea, you may decide it’s best to limit your personal liability for any debt if your company ever gets into financial trouble. This is why most people chose this legal structure.
Definition of a private limited company
The Definition of a private limited company according to the oxford dictionary is: ‘(in Britain) a type of company, usually small, that does not issue shares to the public. The company’s name is usually followed by ‘Ltd’, short for ‘Limited’.
There are two different kinds of private limited companies.
A private limited company is a company that can either be limited by shares or by guarantee:
Private company limited by shares:
This means that the company is owned by shareholders. The liability of each shareholder is limited to the original value of the shares issued to them.
Private company limited by guarantee:
When a company is limited by guarantee, it has members who act as its guarantors. These members contribute a previously agreed amount to support the company in times of trouble.
When setting up your business it’s a good idea to look well into the future to decide where you want to be and where you wish to take your business. If you’re looking to grow your business, this legal structure will help you to share the load and eventually, as the company is a separate legal entity, you could even take a back seat.
But there’s much more to gain from setting up as a private limited company, and while there’s more administration to set up, opting for the help of a formations agent can make it quick, easy and cheaper than you think.
Advantages of a private limited company
Limited liability
You business will become a separate legal entity. This means that if something goes wrong, for example, you get sued or you cant pay your debts, you won’t be personally liable – financially or legally. The debt is tied to the company so you all your personal assets, such as saving, home and car will be safe.
Sharing the work
With the ability to bring many more people into the mix you’ll be able to benefit from others’ expertise and skills, helping you to keep a clear head for business. Setting up as a limited company also makes it less personal when it comes to running your company, as you can share the responsibilities with others much more easily.
Income advantages
As well as limiting your personal liability, you’ll also find there are tax benefits. With the company paying Corporation Tax on taxable profits, you may be protected from higher income tax rates yourself. You can also pay yourself in dividends if the company is in profit, which has a lower tax rate than income tax.
Tax savings
A private limited company also has the advantage of more tax-deductible allowances and costs, which are redeemable against profit.
Business continuity
Let’s say you’re a business owner, you’re working as a sole trader and you wish to take time off. If you become unwell or if you simply wish to retire, your business will also need to go on hold or close. This means you can choose other people to take control when you’re not there.
Disadvantages of a private limited company
Many see the paperwork involved with setting up and running a private limited company as a barrier to getting started. There’s certainly a lot to consider when setting up, However, much of the hassle can be removed when you use a formations agent to help. Considerations include:
Set up costs
Registering a limited company with Companies House means you’ll need to pay a fee of £12. However, if you use us as your formation agent, you’ll find that our formation packages start from just £9.99! Plus you get so much more than just a company formation!
Company accounts
The financial information you need to file is more complex when you’re registered as a limited company. However, this information can also help you to keep a keen eye on your company’s productivity and profitability. And your accounts don’t need to cost the earth to get right.
Shared profits
The profits of a limited company are distributed among shareholders or channelled back into the business. Many companies benefit from this and with investment from profits may grow more successfully.
Example of a private limited company
Let’s say a construction business called ‘Gold Star Construction’ becomes a private limited company, the new name would be ‘Gold Start Construction LTD (or LIMITED)’. All the company, officer and filing details would be stored on the Companies House database, which can viewed online.
An example of a private limited company that you may have heard of is Dyson Limited. You can see the details of this company and it’s officers online here.
Setting up a private limited company
Setting up a private limited company is a simple process and you could be the owner of your own company in a matter of hours. take the first step by checking to see if your company name is available to register.
If you’re not ready just yet, continue to browse the knowledge base for more advice on some of the key terms associated with setting up a business.