Definition of a Private Limited Company

Written by jack s. waverly
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Private Limited Companies are a form of incorporated business that is used to reduce exposure to debt by the owners. A private limited company (PLC) is not found often in the United States, but is more likely to be found in the United Kingdom. The most similar type of business in the United States is the Limited Liability Partnership (LLP). A private limited company can function as any other type of business, including corporations. A PLC pays taxes as an independent unit from the shareholders and managers of the company.

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Definition

A PLC provides a limited liability to the shareholders of the company. It also has restrictions to ownership. The shares held by shareholders of a PLC are never offered to the public or another entity to protect both the company and shareholders from hostile takeovers or unknown investors. This type of business form is called a "closed corporation," similar to a partnership but with more formal restrictions.

Geography

While private limited companies are mainly found in the United Kingdom, they also can be found within other Commonwealth nations such as Australia, Canada, New Zealand and Ireland. Former British colonies such as Hong Kong, India and South Africa also offer that form of incorporation.

Regulations

Private limited companies can be started with little capital. The lowest legal limit in the U.K. is £1 per share capital; which means that any PLC can be started with only £1 contributed by each shareholder, according to the Companies House of the United Kingdom. According to the rules of the Companies House, a PLC must have a registered formal address that can receive official documentation or letters. The accounts of the company must start on the first day the business is incorporated.

To form a private limited company, the shareholders would need to file with the national governmental agency that handles corporations, such as Corporations Canada or the British Companies House. That is handled much like filing with individual state departments of revenue or commerce in the United States.

Purpose

A private limited company protects shareholders from exposure to personal property or financial loss by limiting the risk through the amount of capital they originally invested in the company. That means the shareholders can only lose what they put into the company if the PLC fails. That type of business formation also is mainly used by smaller companies and family-run business to make sure the original owners retain ownership of the company.

Stipulations

When shares are created for a private limited company, certain stipulations exist by law. Shares cannot be sold or transferred before they are offered to the current shareholders. That allows the current shareholders to maintain control. Shares of a PLC are never offered to the public or over an exchange such as the London Stock Market. Each company sets a certain maximum number of shares, which cannot be surpassed.

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