A private limited company is a type of company that has limited liability and shares that are not freely transferable. The owners' or members' assets are thus protected in the event of business failure. Still, it must be stressed, this protection only applies to their shareholdings - any money owed by the business remains.
Private limited companies have become increasingly popular with sole traders and entrepreneurs since they were first introduced in 1948. However, one major drawback for new businesses is that setting up a private limited company can be complicated and expensive. To protect themselves from liability, companies must adhere to certain formalities when incorporating, including filing articles of association with Companies House within 14 days of incorporation and the annual confirmation statement.
Benefits Of Private Limited CompaniesWhen it comes to starting a company, there are a few options to choose from. The most common are Sole Trader, Partnership, and Private Limited Company. There are many advantages of a private limited company, so it is the most popular option. Here we will be discussing the benefits of a Private Limited Company.
- Limited Liability
- Tax Efficient
- Separate Legal Entity
- Easier To Raise Capital
- Easier To Maintain
- Flexible Management Structure
- Professional Image
- Protection From Creditors
The most significant advantage of a private limited company is that the owners have limited liability. This means that the shareholders' assets are protected if the company goes into liquidation. If the company goes bankrupt, the owners are only liable for the amount they have invested in the company. Any company's money remains with the company and does not fall on the owners' shoulders. This can be a significant advantage for new businesses as it protects their assets from potential business failures. One of the key benefits of setting up as a private limited company is limited liability.
Private limited companies are tax efficient as they can claim corporation tax relief on their profits. This can be a significant saving for businesses and increase profits. In addition, private limited companies can pay dividends to their shareholders, which are also taxed at a lower rate. In addition, there are several other tax advantages available to companies, such as capital allowances and R&D tax credits.
A private limited company is a separate legal entity from its shareholders and directors. This means that the company can contract with other businesses and individuals and is liable for its debts. In other words, creditors cannot seek direct payment from the personal assets of the business's owners in case of debts or bankruptcy on behalf of the business. The only money that can be claimed directly in the company's obligations and not those incurred by its owners on behalf of the business is shareholders. This can be essential protection for the shareholders as it limits their liability.
Raising capital for a business can be challenging, and private limited companies are becoming increasingly popular as they attract investors into the business more due to their credibility. This can be done through issuing new shares, taking out loans, or issuing bonds. In addition, it is often easier to approach high net-worth individuals for funding when operating under a private limited company. This is because these potential investors do not require an active role in the day-to-day management of the business, unlike shareholders in public companies.
As private limited companies have become increasingly popular, much online accounting software has incorporated these features into their systems, making maintaining finances extremely easy with options to set up unlimited bank accounts, classes, income, and expenditure items. These include filing annual returns and reports with Companies House, holding shareholders' meetings, and keeping proper company records. In addition, private limited companies must appoint at least one director and one company secretary. This can be helpful for small businesses that do not have the time or resources to manage all the administrative tasks themselves.
Private limited companies are famous for sole traders or small businesses that do not have the resources to set up a public limited company. This can be advantageous for companies who want to keep control of their operations within a small group of people. With private limited companies, the owners are given complete control over managing the business. This can be achieved easily through online systems such as 'FreeAgent.' This also allows shareholders to manage the company via an incorporated board of directors and appoint committees where necessary.
A private limited company gives a professional image to businesses, which can be important when attracting new customers or investors. It also shows that the industry is established and has longevity. This is because private limited companies are more credible and established than sole traders or partnerships. In addition, private limited companies often have their website and letterhead, giving customers and suppliers a sense of trust in the business.
As mentioned earlier, one of the critical benefits of a private limited company is that it offers protection from creditors. This is because the company is a separate legal entity from its shareholders and directors. If the company goes into debt or bankruptcy, creditors cannot seek direct payment from the personal assets of the business's owners. This can be essential protection for the shareholders and directors as it limits their liability.
This means that if the company goes bankrupt, the owners are not personally liable for any money owed by the company. This can be a significant advantage for businesses struggling as it gives them some breathing room and time to reorganize their finances without worrying about personal repercussions.
Overall, private limited companies offer several key benefits which can be extremely useful for businesses of all sizes. By incorporating and adhering to the relevant formalities, companies can enjoy limited liability, tax advantages, and more significant business credibility. In addition, private limited companies are much easier to raise capital from shareholders and third-party investors. With all these benefits in mind, it's easy to see why this company is so popular amongst entrepreneurs and small businesses.