Private limited company

1. A PRIVATE LIMITED COMPANY
Private limited companies limited by shares represent the vast majority of all limited companies
registered in the UK. (The American equivalent is a close corporation, or a limited liability
company, LLC). Many private limited companies are small concerns, the shareholders of which
often participate in the management of the company. These small concerns may be classified as
either family businesses or companies formed as a result of the incorporation of a partnership
business. A private limited company is normally comprised of 2 shareholders, but can have up to a
maximum of 50. The relationship between the shareholders is one built upon mutual trust and
confidence.
A board of directors must be appointed to run the company. The board, elected by all the
shareholders, controls the company by making decisions and running the business. There is generally
a minimum of two directors, one of whom can also act as company secretary. However, a private
company is allowed to have a single director; in this case, another individual must act as company
secretary. A company’s sole director cannot also be the company’s secretary. As a private limited
company is an entity in its own right, it can be sold and it can buy shares in other companies. A
change in shareholders does not affect the life of the company.
To set up a private limited company, the following documents have to be sent to the Registrar of
Companies:-
• Memorandum of Association - Name of company, address, objects, liability, amount and
division of shares, among others
• Articles of Association - regulations regarding share capital, qualifications and duties of
directors, regulations regarding board and general meetings
• Statement of nominal capital
• List of directors
• Statutory declaration stating that the regulations of the Companies Act have been complied with
Once this has been done the Registrar issues a Certificate of Incorporation and the business is able to
operate as a limited company with the abbreviated word “Ltd” after the company name. A small or
medium-sized company may file abridged audited accounts, showing a limited amount of
information, with the Companies Registrar. Larger private limited companies, with a higher volume
of turnover, are required to submit more detailed annual audited accounts to the Companies
Registration Office.
The main advantage of a private limited company is that all the shareholders benefit from limited
liability for the debts incurred. This means that, should the business undergo any financial
difficulties, the shareholders will only stand to lose what they originally invested.
Ownership needs to be considered carefully, as the shareholder with the largest share of the business
has the greatest control. When people become members of the company, they agree to take shares on
incorporation, which are in turn allotted to the members. The remaining shares can be sold to other
businesses or family members or acquaintances, but may not be advertised for sale to the general
public. Later, more people can become members of the company and be allotted shares. However,
the directors may not allot new shares without the consent of the existing shareholders. Shares may
be transferred from one shareholder to another provided that all the other shareholders are in
agreement.
Although the vast majority of private companies are small concerns, there is no legal compulsion on
the part of a successful private limited company to re-register as a public limited company. Indeed,
the shareholders of a large and successful private company may wish to retain its private company
status in order to exert control over the company’s destiny, rather than agree to offer its shares to the
general public and risk the possibility of losing a controlling interest in the company.
Legislative policy regarding private limited companies has changed since the 1960s, and has become
more flexible. The change of attitude has largely been due to the need in the UK to encourage the
growth of small private companies and to remove from their path certain formal requirements which
made it difficult to set up small companies.