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What is a Private Limited Company?

Private Limited Company

Business

What is a Private Limited Company?

What is a Private Limited Company?

The private limited company is a commonly heard phrase. It is the most common term discussed while setting up a new business. Whatsoever business plan you have or whatsoever the best idea you do to start up a business, risk possibility is always there. The risk management and planning to face the possible financial crisis even in the best business plan is still the principal concern of business holders; here comes the format of an organization. A private limited company is the financially safe format organisations a business organisation as it limits the financial liabilities in case of financial crisis. The owner is liable to pay the debts only up to the amount of investment value.

Private Limited Company – A Preferred Choice of Britsh:

The uncertain political environment seemed to bring in disaster for British business world, but Britain’s private companies are performing well under the looming Brexit. Even, many businesses are recording the most significant sales and profits over a couple of years sidelining all the speculations of economic experts they had after Brexit agreement. Healthcare at Home with £1.8 billion sales, Home Bargains with £1.87 billion sales, Arcadia with £1.9 billion sales, Rubix with £1.91 billion sales, Swire with £10.4 billion salesGreenergy with £15.7 billion sales, INEOS with £26.9 billion sales etc. are among the top 30 private limited companies of the UK. Private Limited Company has been the most popular choice for UK company incorporation. Dozens of retailers and sole traders are forming the private limited companies to protect themselves against financial losses in ever-changing economic conditions. And, out of these, many are of tiny size established with little investment.

Two Types of Private Limited Companies:

There exist two kinds of private limited companies. The private limited company can be limited by the shares or by a guarantee by one or a group of members. The shares based private limited company is owned by the shareholders; therefore, a liability of shareholder towards the debt is limited to the value of shares possessed. The guarantee based private limited company is secured by a guarantee; its members act as the guarantors for the debts. However, the private company limited by shares is a more popular choice. The members contribute to paying back the debts in their individual capacity as is defined in the agreement. If you are planning for a business setting, making it a private limited company will help you share the financial load as well as a risk because the company is legally considered a separate entity; and a case of massive loss, you can even take the back seat. Setting up a private limited company is simple; the task can be completed within hours.

Setting Up a Private Limited Company:

Running a private limited company in the UK means that the company:

  • Is separate legally from the people running it

  • Has separate finance resources from personal financial resources

  • Can keep any ration profit after paying tax

 To set up your private limited company, you need it to register with ‘Companies House’ also known as ‘incorporation’. To start the process, you need:

  • Company name

  • Address for company

  • At least one person to name as director

  • Company’s share details; at least one shareholder

  • SIC code that identifies the planned business activities

  • Agreement of shareholders to create a company

  • Memorandum and article of association

  • List of people with special control powers in a company; it usually includes the people having more than 25% shares and voting right.

An advantage of Starting Business as a Private Limited Company:

  • It is a separate legal unit; if it faces a financial crisis, you are not personally liable legally or financially.
  • Setting up a private limited company is less personal because of shared responsibilities with others.
  • You get benefits of others’ expertise, experience and skills.
  • Protection from high-income tax rates after paying corporation tax.
  • Tax-deductible allowances and costs reduce the profit assessed for tax payment.
  • You have the liberty to choose other person or people to take the business control when you want to quit.

Disadvantages of Private Limited Company:

  • Complex paperwork while setting up
  • You pay a fee for registering with ‘Companies House’.
  • Financial information to be filed is complex.
  • Profit is distributed among the shareholders.
  • A more significant portion of the profit is required to invest in business again.

Other Key Points Worth To Remembering:

The chosen business name should not be identical or similar looking to any different business name registered with Companies House. For a business to be registered in Scotland, the address should be in Scotland; for the business to be operated in Northern Ireland, the address should be in Northern Ireland. Likewise, the private limited company registered in England or Wales must have a business address in England or Wales. All the directors must be over 16 years’ age. Company Secretary is the optional post in a private limited company. You can appoint the Company Secretary to get assistance in business administration. All the directors, secretaries and shareholders don’t need to be UK based, but at least one person should be UK based. A corporate body can act as the director, secretary or group of shareholders but there should be one natural person as a director. Companies House makes your home address available on its website for everyone if it is mentioned as the registered address.

As of today, you don’t need to charge VAT until the turnover reaches £85,000. However, many business owners set up the business with the intention to make their business feel more significant for trade repute; it is time to think whether you need to register for VAT or not. Account management is the key task in private limited company formation, and it remains significant even after the launch, but the advantage is that it helps you to keep an eye on productivity and profitability.

Here are eight tips for enjoying the journey as an entrepreneur:

  1. Be passionate
  2. Keep working hard
  3. Enhance the market volume consistently
  4. Explore the marketplace for future opportunities with a long-term growth plan
  5. Don’t hesitate in making changes in policies requirements implementing the new ones.
  6. Be calm minded and flexible but persistent
  7. Focus on the strengths of individuals and train them to get better
  8. Follow the customer-centric approach
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Aaron Smith is a content marketing executive at Blogonfinance. He frequently blogs for the Blogonfinance business blog and Forbes. Connect with him on Twitter @aaronsmith20111

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