What are the advantages and disadvantages of a private limited company?

A limited company is one of the most common business structures in the UK. A private limited company is a business that is incorporated and registered with the Companies House and its shareholders are a small group of individuals or entities such as family members or investors.  This is in contrast to a public limited company whose shares are traded on a stock exchange, these types of company can have an unlimited number of shareholders. ​

In this blog we’ll be focusing on private limited companies, however, it’s crucial to understand private company’s advantages and disadvantages and how they affect your business before taking the plunge. ​

One of the most significant advantages of a limited company is you’ll have limited liability. This means your personal assets are generally protected from business debts. If the company faces financial difficulties, your liability is limited to the amount you’ve invested in the company’s shares.​

For example, your company owes £10,000 to a supplier but goes bankrupt. The supplier can only claim against your business assets (e.g., equipment). You are (usually) not personally responsible for paying the remaining debt, even if the company's assets don't cover it all.​

Companies limited by shares and companies limited by guarantee are 2 types of common company structures, read more on this topic or book a meeting with one of our team members. ​

In some cases, operating as a private limited company can be more tax-efficient than being a sole trader or partnership. For example, ​

Read more: sole trader vs private limited company business structures​

Limited companies often have an easier time securing funding from banks, investors, or venture capitalists. This is because they're viewed as more established and less risky than unincorporated businesses, allowing entrepreneurs to grow their business. ​

If you’re seeking business grants, our blog on small business grants in the UK might help you.​

Setting up a private limited company gives your business a big boost in terms of looking professional and trustworthy - when you register with Companies House, people see you as more serious and established. This can be a real advantage when dealing with clients, suppliers, or even banks. They often prefer to work with limited companies because they seem more reliable. This trust can lead to better opportunities, easier access to loans, and better deals from suppliers. In some cases, bigger companies might even require you to be a limited company before they'll do business with you.​

With a company structure, there will be more admin tasks and compliance requirements compared to other structures, such as sole traders. For example, you'll need to file annual accounts and confirmation statements with Companies House and submit corporation tax returns to HMRC. We have a blog on limited company tax responsibilities if you’re interested to learn more. ​

To set up a company, you’ll pay £12 company registration fee to Companies House, you’ll also need to pay £34 each year to file your confirmation statement. ​

Your accountancy and legal fees will also be higher if you trade as a limited company as opposed to a sole trader. ​

There are more compliance requirements for private limited companies, and they can be complex. For example, you need to file a confirmation statement with Companies House each year; you need to file a company tax return to HMRC and financial statements with Companies House every year; if you make changes to your company’s details, you must notify Companies House immediately.​

It’s best to consult with a professional to ensure compliance. At Beany, we specialise in business accounting, ensuring your company is in good hands - get in touch or register now.​

Read more: A guide to limited company tax responsibilities​

Certain information about your limited company, such as financial statements and director details, will be publicly available on the Companies House register. Also, details about the company's directors, such as their names and year of birth are publicly available. ​

Managing the downsides of private limited companies doesn't have to be a hassle, Beany is here to help. We take the stress out of accounting and tax, allowing you to focus on growing your business. Our expert team handles everything from bookkeeping and filing VAT returns to year-end accounts and tax filing, ensuring your company stays compliant with all regulations. ​

With Beany, you can rest assured that your financial affairs are in capable hands, giving you the peace of mind to concentrate on what you do best – running your business. No more worrying about deadlines or complex paperwork; let Beany take care of the compliance so you don't have to. Get in touch or register today.​