1) Privet Limited Company
Private limited company is held by few individuals privately having a separate legal entity. In this, the shareholders cannot trade publicly shares. It restricts its number of shares to 50. Shareholders cannot sell their shares without the approval of other shareholders. It is a company which restricts the right of its members to transfer its shares and it doesn’t send the invitation to the public for subscription of its shares. The private limited company is a proven, successful business model. The business owners hold all shares of the company privately. Shareholders may operate the business themselves, or hire directors to manage the company on their behalf. Forming a private limited company results in protection of personal assets, access to more resources, financial assistance and greater tax cuts.
Private Limited Company is a more complex business structure than a sole trader or ordinary Partnership. A company limited by shares is simply referred to as a Private Limited Company. A private company limited by shares indicates that the company has shareholders whose liability is limited to their capital investment. The shares of a private limited company may not be offered to the general public, unlike those of a public limited company (plc.) and cannot be traded on a public exchange.
Private limited company has main nine characteristics. These characteristics help to control the Private Limited Company. There are;
i. Members – To start a company, a minimum number of 2 members are required and a maximum number of 200 members as per the provisions of the companies act 2013.
ii. Limited Liability – The liability of each member or shareholders is limited. The personal, individual assets of the shareholders are not at risk.
iii. Perpetual succession – The company keeps on existing in the eyes of law even in the case of death, insolvency, the bankruptcy of any of its members. This leads to the perpetual succession of the company. The life of the company keeps on existing forever.
iv. Index of members – A private company has a privilege over the public company as they don’t have to keep an index of its members whereas the public company is required to maintain an index of its members.
v. A number of directors – When it comes to directors a private company needs to have only two directors. With the existence of 2 directors, a private company can come into operations.
vi. Paid up capital– It must have a minimum paid up capital or such higher amount which may be prescribed from time to time.
vii. Prospectus – Prospectus is a detailed statement of the company affairs which is issued by a company for its public.
viii. Minimum subscription – It is the amount received by the company which is 90% of the shares issued within a certain period of time. If the company is not able to receive 90% of the amount, then they cannot commence further business. In the case of a private limited company, shares can be allotted to the public without receiving the minimum subscription.
ix. Name – It is mandatory for all the private companies to use the word private limited after its name.
In the case, if any private limited company doesn’t follow any of the above mentioned characteristics, it ceases to be a private company. Private Limited Company have a more valuable advantages and some drawbacks.
? Advantages of Private Limited Company
? A Private Limited Company is a legal entity; the company’s finances are separate from its owner’s finances.
? The Private Limited Company structure is suitable for profit or non-profit use.
? Protection from personal liability to Limited company owners.
? Private Limited Companies have a reliable legal precedent to guide and direct the shareholders and directors.
? Private Limited Companies have an unlimited life.
? Ltd companies’ may bring additional taxes benefits, and are subject to lower corporation tax.
? Added credibility for Private Limited Companies, which can make it easier for a Private Limited Company to borrow money, raise capital and achieve financing without personal risk.
? Disadvantages of Private Limited Company
? Private Limited Companies must hold annual meetings and the shareholder and directors have specific formalities to observe.
? Owners of the limited companies have less personal control over the company compared to sole traders due to compliance issues.
? A Limited Company is more expensive to set up than a sole trader or partnership.
? Private Limited Companies pay annual fees and have periodic filing obligations.
2) Public Limited Company – PLC
A public limited company (PLC) is the legal designation of a limited liability company which has offered shares to the general public and has limited liability. A PLC’s stock is offered to the general public and can be acquired by anyone, either privately, during an initial public offering or through trades on the stock market. The appellation PLC is more commonly used in the United Kingdom and some Commonwealth countries. The mandatory use of the PLC abbreviation after the name of the company serves to instantly inform investors, or anyone dealing with the company, that the company is public and probably fairly large. A company that trades on the stock exchange. The shares can be traded and sold by any member of the public. It is governed by a set of strict regulations. They are required that they publish a true financial position so investors can determine the exact worth of any shares that they hold in the company. In the PLC if demand is increase its automatically increase the price.
PLC shared have a two types of values.
1. Normand value
2. Market value
While a PLC is also a limited company and shares the advantages of that structure, there are additional benefits. As with any company formation there are some disadvantages for changing to a PLC.
? Advantages of Public Limited Company
? A PLC can, first and foremost, raise capital by selling shares in the company. This is usually a lot greater than the amount which can be raised when you are only a limited company
? Having Company stock listed on a recognized exchange.
? If organization have a large number of shareholders, its essentially spreading risk in the company which can be useful. If managed properly, it can also prevent just one individual holding so many shares that they have an unreasonable control over the future and growth of the business
? The tag of PLC can be a more attractive proposition when it comes to finding finance for growth or for certain new projects. Because creditworthiness is increased. That means banks and other avenues of finance might be more willing to offer loans and credit arrangements than they would if just dealing with a limited company
? That availability of readily available finance, particularly in difficult economic periods, can enable a company to push forward with expansion plans, acquire other businesses and to fund research and development which would otherwise have to be put on hold
? Shareholders benefit from the fact that shares can be bought and sold and there is better liquidity overall.
? There is more prestige and people feel more confident about a business and its reputation and that acts as a form of free publicity
? Disadvantages of Public Limited Company
? The focus is more on protecting the shareholders. That means there are more statutory and legal requirements that your company now has to adhere to
? The level of transparency required for a PLC is much higher than with a limited company. Accounts need to be audited, providing fuller information concerning performance should be made available to anyone who wants to see them
? While with a limited company can maintain control over who has shares, this is a lot more difficult to achieve with a PLC.
? Organization may become far too focused on the short term benefits of the share price, particularly when the business is initially floated on the stock exchange. That could mean compromising or missing out on business overall strategic plan for growth
? The amount of finance that is required to go PLC is higher than with a limited company.
The pros and cons of becoming a Public Limited Company (PLC) mean that most businesses opt for this solution when they have forged a strong enough path in the market and their future success is more or less guaranteed. Getting it right can seriously improve the financial strength of business and move forward to the next stage of company development. Getting it wrong can be catastrophic and always get the best advice before going down this route.