BS-Types of business organisation, page no 38-39 #BS #Typesofbusinessorganisation

What are private limited companies:

Private limited companies are a type of business structure where the company's ownership is divided among shareholders. These companies are privately held, meaning their shares are not available for public trading on a stock exchange. The liability of shareholders is limited to the amount they invested, protecting their personal assets from business debts or liabilities. Typically, private limited companies have restrictions on the transfer of shares to maintain control among a select group of owners, often family members or close associates. They are required to comply with various legal and regulatory requirements, including the submission of annual financial statements. This business structure is popular for small to medium-sized enterprises because it offers a balance between limited liability protection and relative ease of management compared to larger public companies.

The advantages of private limited companies:

• Limited liability: Shareholders are only legally responsible for the company's debts up to the amount of their capital contribution. This protects shareholders from losing their personal assets if the company fails.

• Easier access to capital: PLCs can raise capital by issuing shares, bonds, or borrowing money. They also have better access to funding from banks and financial institutions.

• Perpetual succession: A PLC continues to exist until it is legally dissolved.

• Tax efficiency: PLCs are subject to a 25.17% effective tax rate.

• Flexible management structure: PLC owners have complete authority over the company.

• Easier to sell: It's easier to sell a PLC than a sole proprietorship or other business because it has shareholders.

  Pension contributions: Directors of a PLC can pay themselves a pension from the company and deduct the contributions as a business expense.

The disadvantages of private limited companies:

• Limited access to capital: PLCs can't sell shares to the public, making it difficult to raise large amounts of capital.

• Limited ability to transfer ownership: Shares in a PLC can't be freely bought or sold.

• Legal and regulatory requirements: PLCs must comply with various legal and regulatory requirements, including annual filings and other reporting obligations.

• Public scrutiny: Business records held at Companies House are open to inspection by competitors, investors, and other third parties.

• Higher set-up costs: Setting up a PLC can be time-consuming and costly.

• Greater administrative burden: PLCs have to maintain three types of legally required records.

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