Cambridge AS A Level Business Studies/ ZIMSEC Advanced Level Business Studies/ Business Enterprise Skills Notes: Types of businesses: 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


  • 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

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