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What is a Private Limited Company?

A private limited company is one of the business structures available to entrepreneaurs and is usually an alternative to being a sole trader or entering into a partnership. In the eyes of the law, a private limited company is a separate legal entity which can act in the same way that a human can – it can trade in it’s own name, it can employ people, it can open and operate its own bank accounts and importantly; it can acquire its own debt.

Debt isn’t great and things can get messy when it’s not repaid on time and in full, which is why some sole traders go out of business and potentially lose their posetions – which can easily include their home and car. The ‘limited’ word in private limited company indicates that the company and it’s owners (shareholders or members) have limited liability, this means that any debts that the company takes on stay with the company and it would be the company that potentially loses its assets, not the shareholders (or members).

There are two types of private companies; limited by shares and limited by guarantee – the major difference is that a company limited by shares is profit making and a company limited by guarantee is non profit making. The differences also extend to the ownership of the company;

People (individuals or companies) can buy shares in a private company (limited by shares) – there will a number of shares available to buy in a company (depending on its share capital) and each share will usually entitle the holder to a vote at general meetings and potentially a return on the company’s profits, in the form of a dividend. Significantly, people can buy more than one share, they can buy as many as are made available and in turn; increased shareholding means increased voting powers and increased dividends, subject to the memourandum and articles of association.

With a Company Limited by Guarantee, people can become ‘members’ of the company, sometimes in return for a subscription fee, which entitles them to a vote at general meetings of the company and also to limited liability, but not to any return on the company’s surpluses. The company is managed by a Board of Directors (more commonly know as a Board of Trustees in charitable organisations), each Director is usually appointed by a general meeting of the company and can sometimes be terminated by the meeting as well.

Each private limited company is incorporated by the ‘Registrar of Companies’ which in England, Wales & Scotland is Companies House. This organisation is an executive agency of the Department for Business, Innovation & Skills (a large department of the United Kingdom’s HM Government) which means that it is a public body with an independent and not-for-profit status. Companies House also administers the public register of companies, which contains the particulars of each company, its officers and its shareholders / members.