Types of business organisationsPrivate limited company

Unlimited liability can be a major disadvantage for sole traders and partnerships.

Private Limited companies (normally identified with 'Ltd' after the company's name) havelimited liability, meaning shareholders (owners) are liable for the debts of the company only up to the value of their shareholding. The shareholders are not personally liable for the debts of the business beyond this, so are not at risk of having to sell personal possessions to meet these debts.

In law, a private limited company is separate from the people who own it. Its finances are separate from their personal finances. Because limited companies have their own legal identity, their owners are not personally liable for the firm's debts.

The ownership of a limited company is divided up into equal parts called shares. Whoever owns one or more of these is called a shareholder. Rather than owning the company, they are investors in this separate .

A limited company is private when its shares are not available to the public by being bought and sold on the stock exchange.

Advantages

Private limited companies are owned by one or more shareholders. Quite often these shareholders are supportive family members.

Profits are only shared between shareholders. They receive this as a dividend.

Limited companies are able to raise money by borrowing and through the share issue of ordinary shares.

If the company fails, the investors in a limited company are protected by the rules of limited liability.

Disadvantages

Limited companies must be registered with Companies House.

The legal set up costs are expensive. Limited companies must use documents called Memorandum of Association and Articles of Association.

Limited companies need to disclose financial statements to relevant regulatory authorities and these are made public.

Private limited companies are not allowed to trade shares on the stock market.