Private Limited Company (LTD)

What is a Private Limited Company?

A private limited company, or LTD, is a legally separate business entity that provides limited liability to its owners. Shareholders' personal assets are protected, and the company is registered with Companies House. This structure allows for flexibility in management, easy capital raising through private investments, and is subject to corporate taxation.

What Is Limited Liability?

Limited liability is a legal concept that protects the personal assets of shareholders of a business entity. With limited liability, the financial responsibility of these individuals is restricted to the amount they have not paid on the shares they have agreed to purchase. In the event of business debts, legal actions, or financial losses, personal assets like homes and savings are generally shielded from being used to satisfy the business's obligations. Limited liability encourages investment and entrepreneurship by reducing the financial risk borne by individuals associated with the business entity.

Who Can Be A Shareholder?

Individuals: Any person, whether they are the company's founder, an employee, or an external investor, can be a shareholder.
Companies: Other companies, including both private and public entities, can hold shares in a private limited company. This can be part of a larger corporate structure or as an investment.
Trusts: Trusts can also be shareholders in a private limited company. In such cases, the trust entity holds the shares on behalf of the beneficiaries.
Partnerships: Partnerships, whether general or limited, can own shares in a private limited company.
Charities and not-for-profit Organizations: Charities and nonprofit entities can be shareholders if the company aligns with their mission or if they are investing for financial returns.
Employees: Some private limited companies offer shares to their employees as part of an employee share ownership plan (ESOP), making employees shareholders.

Important Things To Know

Limited Liability: Shareholders' liability is limited to the amount they have not paid on the shares they have agreed to purchase. Personal assets are generally protected in case the company faces financial difficulties.
Private Ownership: Shares are typically held by a small group of individuals, often family members or close associates. Transfer of shares is subject to restrictions, maintaining a controlled ownership structure. Shares cannot be publicly traded or offered to the public for investment purposes.
Number of Shareholders: Private limited companies have a minimum of one shareholder holding at least 1 share with no upper limit unless the articles of association are specifically drafted to restrict it.
Shares and Share Capital: The company issues shares to its members, and the total capital is divided among them. Share capital represents the ownership stake of each shareholder. Shares are typically issued in £1.00 units but they can be issued in any denomination or currency. At the point of registration these shares are unpaid and can remain as such throughout the lifespan of the company. The concept of authorised share capital has now been abolished which means that there is no upper limit to the number of shares that can be issued unless the articles of association specifically restrict it.
Financial Reporting: While private limited companies must maintain financial records and file acopies of their accounts at Companies House, the amount of detail on these public accessible accounts is generally very limited and provides the public with very limited infromation. They are not obliged to publicly disclose detailed financial information.
Governance: Private limited companies have a flexible governance structure. The board of directors is responsible for day-to-day operations, and decisions of the company which can be made efficiently without extensive shareholder involvement.
Annual General Meetings (AGMs): AGMs are optional and this choice is detailed in the articles of association of the company. It is recognised that there is very little value in holding AGMs when a company only has one director or shareholder.
Transferability of Shares: Shares in a private limited company are often subject to restrictions on transfer, allowing existing shareholders to control who becomes a new shareholder. These restrictions must be detailed in the company's articles of association.
Exit Strategy: Exit options for shareholders are typically more limited compared to public companies. Selling shares or transferring ownership may require the consent of existing shareholders.
Financial Privacy: Private limited companies enjoy a higher level of financial privacy as their detailed financial information is not accessible to the public.

Get in Touch

If you have any questions or need further clarification please email rk@chettleburghs.co.uk

or give us a call on 07775 398594