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Private Limited Company – What is it?

What is a private limited company?

There are two types of private limited company, one limited by shares, and the second by guarantee.

A private limited company limited by shares - This is the most common type of company where the members' liability on a winding up is limited to the amount unpaid on shares held by them. This is in stark contrast to the unlimited liability that both sole traders and partnerships face and a significant reason as to why many businesses choose to trade through the limited company vehicle.

A private limited company limited by guarantee - members' liability is limited to the amount they have undertaken to contribute to the company's assets if it is wound up.

The type of private limited company generally in use is that limited by shares. The information within this section concentrates on this form of company.

A business, which is run as a private limited company, will be owned and operated by the company itself. The company is recognising in law as having a personality which is separate from the person or persons who formed the company and/or the directors and shareholders.

Decisions affecting the business, the company or its assets are made either by the directors or by shareholders (i.e. members). The division of power between board meetings (at which decisions of directors are made) and general meetings (at which decisions of shareholders are made) is a fundamental aspect of company law.

Another type of private company is the private unlimited company where there is no limit to members' liability in a winding up. Because of the potential financial consequences, this type of company is rarely used.

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