Private Limited Company

Many private limited companies are quite small. There is no minimum capital requirement (other than at least one share must be issued on incorporation) and the initial share capital is commonly less than £100. Those private companies that are small or medium sized businesses can file modified (i.e. simplified) accounts at Companies House, rather than full accounts.

Dozens of sole traders are forming private limited companies every day to protect themselves against trading losses in our ever-changing economic climate.  Because the company is responsible for its own losses and debts, the member's own assets will be protected from creditors and their liability will be limited to the amounts due on their shares if not yet paid up.

As a limited company, the business profits are subject to corporation tax which was reduced to a single rate of 19% and is more favourable than the higher tax rate paid by an individual if he is conducting the business as a sole trader or through a partnership. The company can also pay dividends. A private company may not offer shares or debentures to the public but it can increase its capital by allotting new shares to existing or prospective shareholders in return for payment.

It is not only small businesses that set up private companies but also big firms and corporations as incorporation is the only way to protect a company name against registration by another person. It is also cheap and simple and will help you beat the competition to new prestigious company names.

The company can remain dormant and need not commence trading until it is ready. It will still need to file its annual accounts but again these can be in simplified form. If a private company gets to the stage where it needs significant investment to grow then it has the option to convert into a Public Limited Company which will enable it to offer shares to the public and potentially to have its shares traded on a Stock Exchange.

What are the advantages?

• A Private Limited Company is a legal entity in its own right and the company's finances are separate from its owner's finances.
• Protection from personal liability - personal assets will not be at risk in the event of failure of the business. The shareholders' liability is limited to the amount, if any, unpaid on the shares held by them.
• Added credibility, which can make it easier to borrow money, raise capital and achieve financing with less personal risk.
• Operating as a limited company often gives suppliers and customers a sense of confidence in the business – they perceive it to be more reputable and reliable giving you commercial advantages.
• Private Limited Companies have a constitution (Articles of Association) to guide the shareholders and directors and regulate their relationship with the company and each other.
• Private Limited Companies have an indefinite lifespan; their existence does not cease with the death of a director or shareholder.
• Operating a business through a private limited company may bring tax benefits.
• The Private Limited Company structure is suitable for profit or non-profit making entities.
• There is no obligation for a private limited company to commence trading within any set time period after its incorporation. This means that the formation of a limited company is a simple and low cost method to protect a business name.

Requirements

• Company Accounts: It is important to maintain accurate books and accounts.  Financial statements in the prescribed form must be filed within 9 months after your limited company's financial year end.
• Officers: all Private Limited Companies must at all times have at least one Company Director.  Currently a company may have other corporate bodies as its directors, but at least one director must be a natural person. A Company Secretary is no longer obligatory.