Limited Companies
If you don't like the Unlimited Liability part to being a Sole Trader or a Partnership, you can set up a Limited Company.
It involves a bit more paperwork and there are a million more rules, but at least you won't lose your house if it all goes wrong.
It involves a bit more paperwork and there are a million more rules, but at least you won't lose your house if it all goes wrong.
A Limited Company is owned by shareholders. So, in other words, owners buy shares in the business. The more shares you own, the bigger share of the profit you will get.
Limited companies must have a meeting every year. This is called an Annual General Meeting (or AGM for short). Shareholders vote at these meetings to decide important things about the business, such as what they should sell more of, or what they should stop selling. Shareholders also vote on how the profits for that year should be shared out, or divided up. That word divide is where the word dividend gets its name from. A dividend is the share of the profit that each shareholder gets.
Limited companies must have a meeting every year. This is called an Annual General Meeting (or AGM for short). Shareholders vote at these meetings to decide important things about the business, such as what they should sell more of, or what they should stop selling. Shareholders also vote on how the profits for that year should be shared out, or divided up. That word divide is where the word dividend gets its name from. A dividend is the share of the profit that each shareholder gets.
Limited Companies must also send their accounts off every year to a part of the government called Companies House. Your accounts are then made public for anybody to see, even me and you!
Now, that's bad news for Accountants who look after famous people. The last thing David Beckham wants is the whole world knowing what he earns. That's why a lot of Accountants stay as sole traders or partnerships, because these types of businesses don't have to send off detailed accounts.
Now, that's bad news for Accountants who look after famous people. The last thing David Beckham wants is the whole world knowing what he earns. That's why a lot of Accountants stay as sole traders or partnerships, because these types of businesses don't have to send off detailed accounts.
Advantages of being a Limited Company:
- You can sell shares in your business to raise extra capital. This can be a great help you if you want to expand your business quickly.
- You do not lose your possessions if the business goes bust. You only actually lose the amount of money that you originally invested in the business. This is known as 'Limited Liability' (instead of Unlimited Liability) because the amount you can lose is 'limited' to the amount you invested. Clever eh?!
- Limited Companies find it easier to borrow money from banks. This is often because Limited Companies have to have detailed accounts prepared each year, so the bank knows if you are making a good profit or not.
Disadvantages of being a Limited Company:
- Selling shares in your business means that you no longer own it by yourself. Therefore, if your business makes a profit, you have to share the profits out amongst the other shareholders (this share of the profits is called a dividend).
- You have to prepare detailed accounts every year to send to Companies House. If you don't have the skills yourself, you may have to pay somebody a lot of money to do the accounts for you and make them look all professional.
Private Limited Company or Public Limited Company?
There are 2 types of Limited Companies; Private Limited Companies and Public Limited Companies. Both of them are normally big businesses and they are both out to make a profit, which means they are both in the Private Sector.
Private Limited Companies have LTD or the word 'Limited' at the end of their name.
Private Limited Companies are a bit like a private club. You cannot buy shares in the a 'Private Limited' business unless the owners of the business ask you to.
LTDs therefore can never be taken over unless the current owners want their business to be taken over by somebody else. This is the main difference between Private and Public Limited Companies.
Private Limited Companies are a bit like a private club. You cannot buy shares in the a 'Private Limited' business unless the owners of the business ask you to.
LTDs therefore can never be taken over unless the current owners want their business to be taken over by somebody else. This is the main difference between Private and Public Limited Companies.
Public Limited Companies are still in the Private Sector, even though they have 'Public' in their name. How confusing is that?!
Public Limited Companies have PLC at the end of their name. They are often massive companies, such as Tesco PLC and Sainsbury's PLC.
They are called 'Public' Limited Companies because the anybody from the public can buy shares in the business. You don't need to be invited; you can just go on the internet and buy some shares. It's proper easy! You'll then be a shareholder of that business, meaning you own part of it, and you'll be entitled to a share of the profits in the future (a dividend).
Shares for PLCs are bought and sold on the stock market, or the stock exchange. The price of a share goes up and down depending on how many people want shares in that business. So, a business that is making a lot of money will probably have a high share price, because everybody will want to own a share and get a share of the profits. If a business is losing money, the share price will go down as people won't want to invest their money in a failing business.
Changing from a LTD company to a PLC company is a really good way of raising capital, as the public will buy shares in your business, giving you lots of money to expand your business. The downside is that you will no longer own your business, and you could end up being bought out even when you don't want to be. That's exactly what happened at Manchester United when the Glazer family bought up all of the shares. The nasty men!
Public Limited Companies have PLC at the end of their name. They are often massive companies, such as Tesco PLC and Sainsbury's PLC.
They are called 'Public' Limited Companies because the anybody from the public can buy shares in the business. You don't need to be invited; you can just go on the internet and buy some shares. It's proper easy! You'll then be a shareholder of that business, meaning you own part of it, and you'll be entitled to a share of the profits in the future (a dividend).
Shares for PLCs are bought and sold on the stock market, or the stock exchange. The price of a share goes up and down depending on how many people want shares in that business. So, a business that is making a lot of money will probably have a high share price, because everybody will want to own a share and get a share of the profits. If a business is losing money, the share price will go down as people won't want to invest their money in a failing business.
Changing from a LTD company to a PLC company is a really good way of raising capital, as the public will buy shares in your business, giving you lots of money to expand your business. The downside is that you will no longer own your business, and you could end up being bought out even when you don't want to be. That's exactly what happened at Manchester United when the Glazer family bought up all of the shares. The nasty men!