Educational

Private Limited Company

A type of company that offers limited liability, or legal protection for its shareholders but that places certain restrictions on its ownership. These restrictions are defined in the company’s bylaws or regulations and are meant to prevent any hostile takeover attempt.

A company must pay corporation tax out of any profits and can then distribute the remaining profits among shareholders. Besides, they tend to be exempt from higher personal income tax rates.

An example of a private limited company is often a local retailer, such as a shop or restaurant, that does not have a national presence. Most private limited companies are small as there is no minimum capital requirement to incorporate a limited company aside from the issuing of at least one share.

What does ‘limited liability’ mean? 

The basis of a limited liability company is that all debts incurred by a company are the company’s liabilities and are not directly the legal liabilities of the company’s shareholders or directors. The directors of a limited liability company do not incur personal liability as all their acts are undertaken as agents for the company.

What are the ownership restrictions?

The restriction placed on the sale or transfer of shares may be considered an advantage or disadvantage, depending on your outlook.

The major ownership restrictions are:

  • shareholders cannot sell or transfer their shares without offering them first to other shareholders for purchase;
  • shareholders cannot offer their shares to the general public over a stock exchange, and the number of shareholders cannot exceed a fixed figure (commonly 50).