Limited Companies

Private Limited Companies - Ltd

Many private limited companies start out as sole traders or partnerships. They are
mostly small scale operations and often run by family members. They form a limited
company to:
1. Improve their financial security as the owners (now called shareholders) are no
longer personally liable for the business debts. This is called limited liability. This
means that if the company went out of business and left debts then the
shareholders would only lose the money they put into the company. The company
would go into liquidation.
2. Provide a better image to the customers who presume the business is more secure.
Benefits for the owners

The business can still stay small many ltd businesses only have three or four
shareholders. The minimum is one director and one shareholder and there is
no upper limit on the number of shareholders.

The owners usually work in the business are interested in its success.

The shareholders are often directors and are responsible for running the
business.

It is quite easy to set up a private limited company. In some cases the owners
may only have invested 100 or 200 to start up.

Shares can only be transferred of all shareholders agree, they cannot be sold to
the public. This means the owners have direct control over the business.

As the owners have limited liability they will never lose more that they have
invested.

Banks are more willing to lend money to a limited company.

The accounts are still private between the owners, their accountants and the
Inland Revenue.

Drawbacks for the Owners

Shares cannot be sold to the general public to raise additional capital.

Limited companies have to comply with more regulations that sole traders or
partnerships. A limited company is not allowed to trade under the name of an
existing company if this will cause confusion for customers and suppliers.

If the company ceases trading it must officially be wound up.

There are two legal documents that have to be completed in order to form a limited
company:
The Memorandum of Association this gives details about:

The name of the company

The address of the registered office

A statement that the shareholders will have limited liability

The type and amount of share capital

A description of the business activities

The Articles of Association this gives details about:

Details about the voting rights of the shareholders

How profits will be distributed

The directors of the company

What procedures will be followed at the annual general meeting

Once these documents are completed they are sent to the Registrar of Companies who
issues a Certificate of Incorporation. A company must have this before it starts
trading. Every year the company must send a copy of its audited accounts to
Companies House.
All profit in theory belongs to the shareholders, however, a proportion of the profit is
usually put back into the business each year to replace old equipment or fund growth.
The remaining profit is then distributed between the shareholders according to the
number of shares held.
Public Limited Company PLC
These are the largest type of privately owned businesses in the UK. Many started as
small businesses, growing into Ltds before being floated on the stock exchange. This
means that any member of the public can buy shares in the business. the shareholders

in these companies are different from the directors who are usually employed by the
business.
A company must have more that 50,000 before it can go public and must have a
good financial track record.
Benefits for the Owners

Much more capital (money) is available as there are more people to buy the
shares this makes expansion easier.

Some public companies can be quite small there needs to be a minimum of

two directors and two shareholders.

Large public companies can often operate more cheaply than small companies
as they can operate economies of scale. This means they could mass produce
goods or buy in bulk to save money.

If the company is successful then the shares will increase in value which will
increase the overall value of the company.

Drawbacks for the Owners

A public company must be registered with the Registrar of Companies nad has
external regulations to comply with.

An annual general meeting (AGM) must be held each year nad all
shareholders must be invited.

Specific accounts must be prepared each year and audited, the public can have
access to these accounts.

Shareholders invest their money into and in return for this investment they are
entitled to part of the profits this is called a dividend.

Shareholders may have little interest in the long term success of the business
and may only be interested in a quick return on their investment.

The original owners may lose control over the company.

Advantages and Disadvantages of a Private Limited Company (Ltd)

Advantages
Limited Liability

Disadvantages
Profits have to be shared out

More capital can be raised as

amongst a potentially larger

no

number of people

limit

on

number

of

shareholders

Detailed Legal procedures

Control of company can not

must be followed to set up

be lost to outsiders shares

the business consuming

only sold if all shareholders

time and money

agree

Financial information can be

The business will continue

inspected by any member of

even if one of the owners

the public once filed with the

dies, Shares being transferred

Registrar,

to another owner

competitors

including

Advantages and Disadvantages of a Public Limited Company (Plc)

Advantages
Disadvantages
Essentially those of the Ltd,
Most expensive set up cost of

plus

all

Increased potential for raising

organisation considered

finance by share issues or

through

other

financial

business

Due to public transfer of

takeover bids

Due to their size they can

Tighter levels of regulation

gain

Public

Scale.

from

Economies

Many

Plcs

of

ownership

by

are

minority shareholders does

with

not provide them as owners

production facilities in more

with any real control of the

than one country

business

Multinationals,

of

shares, more open to hostile

investors

forms

The Plc Can use its power /

Large Plcs may suffer from

size to dominate a market, by

for

example

competitors

purchasing

diseconomies of Scale

Source not sure -india maybe

Advantages of a Private Limited Company
A private limited company (pvt ltd company) is the most common vehicle to carry on
business for an entity intending to make a profit and enjoy the benefits of an
incorporated entity, particularly limited liability. Besides, limited liability and minimal
statutory compliances, pvt ltd companies offer the following advantages:
Separate Legal Entity
An entity means something which has a real existence; a thing with distinct existence.
A company is a legal entity and a juristic person established under the Act. A juristic
person is a person who is not a natural person or human being. Therefore a company
form of organization has wide legal capacity and can own property and also incur
debts. The members (Shareholders/Directors) of a company have no liability to the
creditors of a company for such debts. Hence, a pvt ltd company is a legal entity
separate from that of its members.
Uninterrupted existence
A company has perpetual succession, that is continued or uninterrupted existence
until it is legally dissolved. A company, being a separate legal person, is unaffected by
the death or other departure of any member but continues to be in existence
irrespective of the changes in membership. Perpetual succession is one of the most
important characteristics of a company.
Limited Liability
Limited Liability means the status of being legally responsible only to a limited
amount for debts of a company. Unlike proprietorships and partnerships, in a limited
liability company the liability of the members in respect of the companys debts is
limited. In other words, the liability of the members of a company is limited only to
the extent of the face value of shares taken up by them. Therefore, where a company
is limited by shares, the liability of the members on a winding-up is limited to the
amount unpaid on their shares.
Free & Easy transferability of shares
Shares of a company limited by shares are transferable by a shareholder t any other
person. The transfer is easy as compared to the transfer of interest in business run as a
proprietary concern or a partnership. Filing and signing a share transfer form and

handing over the buyer of the shares along with share certificate can easily transfer
shares.
Owning Property
A company being a juristic person, can acquire, own, enjoy and alienate, property in
its own name. No shareholder can make any claim upon the property of the company
so long as the company is a going concern. The shareholders are not the owners of the
companys property. The company itself is the true owner.
Capacity to sue and be sued
To sue means to institute legal proceedings against or to bring a suit in a court of law.
Just as one person can bring a legal action in his/her own name against another in that
persons name, a company being an independent legal entity can sue and also be sued
in its own name.
Dual Relationship
In the company form of organization it is possible for a company to make a valid and
effective contract with any of tis members. It is also possible for a person to be in
control of a company and at the same time be in its employment. Thus, a person can at
the same time be a shareholder, creditor, director and also an employee of the
company.
Borrowing Capacity
A company enjoys better avenues for borrowing of funds. It can issue debentures,
secured as well as unsecured and can also accept deposits from the public, etc. Even
banking and financial institutions prefer to render large financial assistance to a
company rather than partnership firms or proprietary concerns.

Unincorporated Association
Unincorporated Associations are groups that agree, or contract, to come together for
specific purpose. They normally have a constitution setting out the purpose for which
the association has been set up, and the rules for the association and its members.
They are typically governed by a management committee. All members of the
management committee will again have unlimited personal liability, unless they are
specifically indemnified in the constitution. As for a Sole Trader, there is a limitation
on raising finance, minimal regulation, and self-employed tax status for management
committee members.