AS A Level Business: Private Limited Companies

• As we have already mentioned, there are many specific types of limited liability companies in existence throughout the world
• However, there are two main general types of limited liability companies:
  • Private limited liability companies and public limited liability companies
• Here we will look at the features, advantages and disadvantages of private limited liability companies

The Features of a Private Limited Company

• These are closely held limited liability companies usually owned by friends and family
• A private limited liability company is treated as a separate juristic person
• This means it can sue and be sued in its own name and
• It does not cease to exist upon the death of one of its shareholders
• The number of shareholders is limited from 2-50 and
• The sale of shares on the private on the Stock exchange is prohibited.
• Shareholders’ right to sell shares is limited i.e they have to consult other shareholders before they can sell their shares
• Shareholders can operate the company themselves or
• They can elect a Board of Directors during the Annual General Meeting (AGM) to operate the business on their behalf.
• In most jurisdictions, the name ends with the words Private Limited Company (PVT LTD) or some other equivalent words e.g. LLC in the United States,
• Its affairs are governed by the Memorandum and Articles of Association,
• It is registered under the Companies Act or other similar Acts/laws in other countries

Advantages of private limited companies

• The shareholders have limited liability, it’s important to remember its the shareholders who have limited liability
• There is continuity after the death of each member
• Companies are not required to publish their private accounts
• More capital can be raised as the company can have more than 20 members unlike a partnership
• There is more scope for expansion and growth
• Because sell of shares is limited there is less risk of hostile takeovers or loss of control

Disadvantages

• Decision making is much more complex and convoluted.
• Members and the company itself cannot sell their shares publicly so the amount of capital that can be raised is limited.
• Shareholders cannot freely sell their shares without consulting with other shareholders
• Profits are shared among many members
• The procedure to form these is more complex
• There is the possibility of double taxation

To access more topics go to the Advanced Level Business Studies page

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