Private Limited Companies have separate legal identities to their owners, and thus their owners have limited liability. The company has continuity, and can sell shares to friends or family, although with the consent of all shareholders. This business can now make legal contracts. Abbreviated as Ltd (UK), or Proprietary Limited, (Pty) Ltd.
- The sale of shares makes raising finance a lot easier.
- Shareholders have limited liability, therefore it is safer for people to invest but creditors must be cautious because if the business fails they will not get their money back.
- Original owners are still able to keep control of the business by restricting share distribution.
- Owners need to deal with many legal formalities before forming a private limited company:
The Articles of Association: This contains the rules on how the company will be managed. It states the rights and duties of directors, the rules on the election of directors and holding an official meeting, as well as the issuing of shares.
- The Memorandum of Association: This contains very important information about the company and directors. The official name and addresses of the registered offices of the company must be stated. The objectives of the company must be given and also the
amount of share capital the owners intend to raise. The number of shares to be bought by each of the directors must also be made clear.
- Certificate of Incorporation: the document issued by the Registrar of Companies that will allow the Company to start trading.
- Shares cannot be freely sold without the consent of all shareholders.
- The accounts of the company are less secret than that of sole traders and partnerships. Public information must be provided to the Registrar of Companies.
- Capital is still limited as the company cannot sell shares to the public.