What is a Private Limited Company?

A private limited company is one of the most prevalent types of company structures around the globe. A private limited company represents a structure that has private ownership. Usually, the ownership of a private limited company stays between a group of individuals. One of the common types of private limited companies is family-owned companies.

Private limited companies are the opposite of publicly-listed companies. Public companies do not have limited ownership. Instead, the general public can buy their shares in the market without any restrictions. That is one of the other distinguishing features for private limited companies. There is no established market for members to buy the shares of a private limited company. Instead, they must obtain these shares directly from the shareholders.

What are the types of Private Limited Companies?

There are two types of private limited companies. These include private companies limited by shares and private companies limited by guarantee.

What is a Private Company Limited by Shares?

In a private company limited by shares, the shareholders’ liability is limited to the capital they invest in the company. These private limited companies are prevalent in England, Wales, Ireland, Scotland and some Commonwealth countries. Private companies limited by shares allow shareholders to protect their personal assets in case of insolvency.

What is a Private Company Limited by Guarantee?

A private limited company limited by guarantee does not have shareholders or share capital. Instead, it has members who act as guarantors of the company’s liabilities. This structure is different from private companies limited by shares. In private companies limited by guarantee, the members contribute a specified amount in case of insolvency. This structure is most common for non-profit organizations.

What are the advantages of a Private Limited Company?

Private limited companies have many advantages for their shareholders. These include the following.

  • A private limited company is a separate legal entity that can conduct business on its own.
  • The control structure of private limited companies is straightforward compared to publicly-listed companies.
  • Private limited companies have perpetual existence.
  • Private limited companies have limited liability.
  • Shareholders can transfer shares to others without any restrictions.
  • There is no minimum capital requirement for private limited companies.
  • Private limited companies can get tax incentives and exemptions.
  • Private limited companies can obtain funding and loans from financial institutions.

What are the disadvantages of Private Limited Companies?

Despite its many advantages, private limited companies also have some disadvantages. These are as below.

  • It is difficult for private limited companies to raise capital through equity compared to publicly-listed companies.
  • Private limited companies have to fulfil various compliance obligations.
  • Some private limited companies may restrict the transferability of their shares through their articles.
  • In some jurisdictions, private limited companies may have a limited number of shareholders.
  • Private limited company shares cannot be quoted in the stock exchange.

Conclusion

A private limited company is a type of company that comes with closed a closed ownership structure. It is the opposite of a publicly-listed company. Furthermore, there are two types of private limited companies, including limited by shares and limited by guarantee private companies. Private limited companies may come with various pros and cons, as listed above.

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