There are a number of different options when setting up a new or small business. These may depend on the size of the business, the number of owners and the level of risk owners are willing to take.
In the UK, there are two different types of company: private limited companies A private limited company has limited liability. Often, these types of business have ‘Ltd’ after their business name. and public limited companyA company where shares are offered to the public.. They are both owned by shareholdersA part owner of a private or public limited company. and both have Limited liability When the business owner or owners are only responsible for business debts up to the value of their financial investment in the business. .
Private limited company (Ltd)
A private limited company can be a small or large business. The owners of a private limited company are known as shareholders. Shareholders have to be invited by the business before they can purchase a sharesA percentage or portion of a company. of the business. A share is a portion or percentage of a company.
Some advantages of a private limited company include:
the owners have limited liability
it can improve the status of the business
any new shareholders have to be invited, which protects the business from outside influence
if the founder dies, the company still exists and is controlled by the shareholders
Some disadvantages of a private limited company:
there is often more paperwork
in some instances, other people are able to view the business’ financial information
it can be very time consuming to set up
the business may require outside professional help to manage its finances
Public limited companies
A public limited company can sell its shares on the stock exchangeA centralised market where business shares are traded.. A flotation occurs when a private limited company wants to become a public limited company. Because shares are sold to the general public there is often more media coverage of public limited companies.
Some advantages of a public limited company:
shares can be sold to the general public which means there are a large number of potential investors
more media coverage which is good publicity
shares can be bought and sold easily
Some disadvantages of a public limited company:
negative media coverage can damage their reputation
at risk of being taken over as they cannot control who buys their shares
more regulation than a private limited company which can increase costs
shareholders get a vote in the business and may have different objectives than the original owners
