Advantages and Disadvantages of Private Limited Company and Legal Procedure for Creating One

This essay discusses the advantages and disadvantages of private limited company as a business structure, with a focus on the requirements of Ben and Bill. It also explains the legal procedure for creating a limited company in the UK.

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Business Law Assignment
Essay
02-Mar-18
(Student Details: )

Business Law Assignment
Running any business is not an easy task, and a more difficult task is to choose which form of
business structure has to be used for the business. Once a business structure is selected, changing
it is a tedious task, and this makes the choice of business structure, all the more crucial. The
leading options to choose from when two or more individuals want to carry on the business are
partnership and company (Jones, 2017). This discussion is focused on highlighting the key
advantages and disadvantages for Ben and Bill of private limited company with a particular
focus on their requirements, along with explaining the legal procedure which has to be followed
for creating a limited company.
The first and foremost advantage of private limited company is that it has limited liability. The
liability in such companies is limited by shares. When the company is faced with the financial
difficulty, the personal finances and the assets of the shareholders remain protected beyond their
shareholding value. This is not possible in a partnership as partnership comes with unlimited
liability for the owners. The next advantage of limited companies is the corporate image the
professional status they get, which helps in boosting the business’s value, which ultimately gives
it credibility. Often, credibility lacks in partnerships. Another substantial advantage for the
private limited companies is that they are taxed lesser in comparison to other business structure
forms. Further, they are taxed at a single rate. Another advantage is that of financing. In private
limited companies, the capital can be raised by issuing their shares. However, the private
companies cannot offer their share to the public (Kelly et al 2011).
Even though there are a number of advantages in a private limited company form of business
structure, it is charred with a number of disadvantages also. The first and foremost one in this
regard is the high compliance costs and the costs of forming a company. The next disadvantage
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Business Law Assignment
lies in the fact that the affairs of the private limited company are exposed to public, where the
level of public exposure is higher in comparison to partnership form. Further, unlike partnership,
the owners do not run the business. The owners of private limited company are shareholders, but
the business is run for them by the directors and the other key managerial persons. There is also
an increase in the administration responsibilities and therefore running of business in a company
form is more complex, in comparison to partnership or sale trader form of business structure
(Jones, 2017).
The setting up process of a private limited company starts with a person deciding on starting a
company; this person is known as the promoter. This person takes professional advice on how to
start a company and has different duties. Instead of setting up a new company, there is a
possibility to purchase a company “off the shelf”. This is because a number of businesses offer
such readymade private limited companies, which have already been registered with the
Companies House, and have been left dormant. When such a company is purchased, the shares
are transferred to the buyer and the notification of new directors and changes made to the
constitution and name of company are notified to the Registrar of Companies (Jones, 2017).
For creating a new private company limited by shares from scratch, there is a need to make
application electronically or on paper to Registrar of Companies. This has to be accompanied by
Memorandum of Association, application for registration, statement of compliance, and the
pertinent fee. The next step in this regard is to choose the name of the company. The limited
companies are allowed to use “trading as” business names, in addition to the company name
which is registered with the government. There is also the need of checking the name of the
company, which requires four checks for finding if a name is available. There is a need to be
clear on the registered office address as this is the public information and is required to be made
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Business Law Assignment
public. There is a need to make certain that the name of company does not infringe the UK
Intellectual Property Office’s Trade Marks Register (UK Government, 2017).
The appointment of company directors is then to be undertaken, along with providing the details
of the directors’ address to the government. There is also need to attain clarity on the
shareholders of the company as they are the owners of the company and get to vote in crucial
decisions of the company. This is followed by allocation of shares. There is a need to state the
Person with Significant Control; as this allows the individuals to hide behind the nominee
directors. There is also a need to tell the government about the Standard Industrial Classification
code and to complete the registration paperwork. This is followed by undertaking the first board
meeting and issuing share certificates (UK Government, 2017).
Once these stages are completed, there is a need to submit the memorandum of association
documents through the internet, where the aforementioned details are to be provided. There is
also a need of appointing a company formation agent, who can assist in the registering of the
business. This agent handles the paperwork and submits the documents to the Companies House.
Before a company can start trading, certain documents have to be provided to the Companies
House, which includes the memorandum of association, the articles of association and form IN01
giving details of the company secretary, company directors, shareholders, and the details of share
capital (Roach, 2016). The costs of registering a company house are minimal, and standard
registration fee just is £40 (UK Government, 2017).
In order to raise the capital for the company, the same can be done through Initial Public Offer,
i.e., IPO. Otherwise, the promoters of the company or the initial shareholders of the company can
assist in financing the company. Only when all the requirements are fulfilled, is the certificate of
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Business Law Assignment
incorporation issued by the Companies House. This document is a proof of all the requirements
of creating a company under Companies Act 2006, having being complied with. This includes
details like whether the company is a public or private company, and whether it is limited by
shares or guarantee. This certificate needs to have the official seal of the registrar (UK
Government, 2017).
Thus, in the previous section, the details on the different advantages and disadvantages of private
limited companies have been detailed, along with highlighting the process of forming a private
limited company in UK. This is set to help Ben and Bill in choosing private limited company as
the business structure for their future endeavours and in them knowing the process of registering
a limited company.
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Business Law Assignment
References
Jones, L. (2017) Introduction to business law. Oxford: Oxford University Press.
Kelly, D., et al. (2011) Business Law. 6th ed. Oxon: Routledge.
Roach, L. (2016) Card and James' Business Law. 4th ed. Oxford: Oxford University Press.
UK Government. (2017) Incorporation and names. [Online] UK Government. Available from:
https://www.gov.uk/government/publications/incorporation-and-names/incorporation-and-names
[Accessed on: 02/03/18]
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