Private limited companies are a form of business that is privately held by a small business entity. This form of business limits shareholders up to a maximum of fifty shareholders. It also does not allow its members to publicly trade their shares.
We have various examples of private limited companies. These include Facebook company and candy maker mars company.
Pros of Private Limited Companies
- Restriction on transfer of shares
As the form of business restricts the owner from transferring shares to outside companies this makes it advantages in that it becomes very hard for shareholders to sell their shares. The money remains in the company for long making it exist long.
- Continuity of its existence
This form of business will continue to exist even after the death of the owner or decides to leave the business. A private limited company is a legal entity as opposed to a sole proprietorship in that it is able to own assets separate from the company owner.
- Easy to raise additional capital
This can be done by selling the shares hence easy to get more capital to expand the business.
- Liability restriction
The shareholder’s liability is restricted to the number of shares they own in the company.
- Higher business status
This form of business has higher business status compared to the sole proprietorship form of business.
- Protection of company’s name
The company’s name must be completely unique. Any other business cannot use the company’s name as a sole proprietorship.
- No mistrust
The image of the business adds value and credibility to the business. This is due to the level of risks involved in the contracts they award.
Read More: Pros and Cons of Public Limited Companies
Cons of Private Limited Companies
- Ownership and control of the business is separate
This becomes disadvantageous to the owner because he or she cannot make decisions about the company alone.
- Not easy to start
Before the form of business is started, there is a need for professionals who will help in the set-up of the business. It also takes long and it is more expensive to start the business.
- A lot of documentation
The business entity needs to be audited annually and accounts have to be presented to the registrar of companies.
- Difficulty in withdrawing the money from the business
As it restricts the shareholders from transferring their shares, it makes it difficult to withdraw the money from the company.
- Difficulty in changing the company’s name
The of the company is subjected to restrictions and in case it needs to be changed, the company house must be notified immediately.
Read More: Pros and Cons of Public Corporation
This form of business is better in that it cannot really collapse due to mismanagement of funds as an annual report as to be filled. It is better compared to the sole proprietorship form of business.