What is a Private Limited Company?
A private limited company is a business entity that is, as the name implies, privately held. Private limited companies usually consist of small and medium businesses. The owner of a private limited company would limit his or her liability to their shares, and limits the number of shareholders in a company to a maximum of 50. Shareholders of a private limited company are also restricted from publicly trading shares.
A private limited company is a legal entity it its own right and the company’s finances are a separate thing altogether from the owner’s finances. A private limited company is one of the most suitable structures for both profit and non-profit making business entities. With the private limited company option, the company has an indefinite lifespan, and will be able to run as long as there is somebody to run it.
How to Set Up a Private Limited Company
To establish a private limited company, investors would need to complete the following steps:
- Select a suitable and unique name for the company
- Acquire a registered company address for the business
- Appoint at least one director
- Appoint at least one shareholder to manage the details of the company shares
Who Can Establish a Private Limited Company?
If you have the means to do it, you can establish a private limited company by yourself and own 100% of the shares, or divide the shares among other shareholders in your company if you have more shareholders.
Owners of private limited companies are known and shareholders, and each of these shareholders would hold a certain number of shares in the business. To become a shareholder of a private limited company requires the individual to purchase one or more shares which are issued by the company. Each share purchased would represent an equal percentage of the business. Basically, the more shares you hold, the bigger the percentage of the business that you own.
The people in charge of running and managing a private limited company is known as a director(s). The requirement for a private limited company ordinarily is to have at least one director, which in a lot of cases usually ends up being the owner of the company themselves.
Why Having a Private Limited Company is Beneficial?
Running a business as a private limited company would offer you the advantages below:
- A professional status, as private limited companies are usually seen as a more professional body compared to other business entities like the sole trader for example.
- Owners of a private limited company have a more tax efficient income within the legal limitations.
- When you own a private limited company, you are protected from personal liability. Personal assets will not be at risk with this company option if the business fails. The liability of the shareholders is only limited to the amount (if any) unpaid shares which are held by them.
- Doing business with other companies is also much easier when you’re a registered and incorporated private limited company because of the level of professionalism that goes with this type of business entity.