Private and Public
Limited Companies
OCR National Level 2 Award in Business – Unit 1
September 2010
Miss Nation
Learning Objectives
By the end of this task you should be able to:
1. Identify the features of a private and a public limited
company.
2. Consider which form of ownership would be the most
appropriate in different business scenarios.
3. Discuss the reasons why business ownership
structures might change.
Introduction
You have already learned about Sole Traders
and Partnerships.
The next step up the business ladder is
forming a Private Limited Company.
This gives the company the right to add the
abbreviation Ltd to its name.
How to set up a Ltd Company
• To set up a private limited company (Ltd) it
is necessary to register with the Companies
Registration Office.
• To do this a company will have to employ a
solicitor which will cost between £100 and
£180.
• This process is known as Incorporation.
Separate Legal Entity
A private limited company (Ltd) is recognised
in the eyes of the law as separate from the
owners of the business.
The business is a “person” in the eyes of the
law.
This means a Ltd company can borrow
money, trade, make contracts, sue and be
sued in its own right. Not in the name of
the owners.
Limited Liability
The owners of private limited companies
(Ltd) have limited liability.
This means that they can ONLY loose the
money that they invested in the business.
Their personal possessions are not at risk.
Owned by Shareholders
• The private limited company is owned by
shareholders.
• Shareholders are usually the people who
start the business and their friends, family,
business associates and employees.
• All of the shares in a business can be owned
by one person.
Why be a shareholder?
Shareholders may receive some of the
companies profits in the form of a dividend.
Although some of the profits may be retained
in the business to make improvements.
Shareholders elect the directors of a company
through voting. Therefore they have a say
about how the company is run.
Who makes decisions in the Ltd Company
• Shareholders elect directors
• Directors decide on company policy
• Managing director runs the company on a
day-to-day basis
The founders of the business are usually the
main shareholders (I.e. hold the most
shares) and thus have some control over the
business.
Advantages of being a Private Limited
Company (Ltd)
• Shares can be issued as a way of raising
capital (money going into the business)
• Separate legal identity from the owners
• Limited Liability
• Usually find it easier to borrow money from
the bank
• Founders of the business can keep some
control over the business
Disadvantages of being a Private Limited
Company (Ltd)
• It is more difficult and expensive to set up a
private limited company than to set up as a
sole trader or partnership.
• Accounts have to be audited by an
accountant – which costs money
• There are legal formalities – such as details
of financial affairs must be sent to the
Registrar of Companies each year
• Less flexible than a sole trader – more
difficult to make decisions
Public Limited Companies
What is a Public Limited
Company?
• A public limited company can trade its shares
on the stock exchange.
• Share Ownership is open to the PUBLIC and
shares are bought and sold via the Stock
Exchange.
Public limited companies include Lloyds TSB
Bank plc, Marks and Spencer plc.
Advantages of a PLC
• Shareholders can invest money without
risking their personal possessions (limited
liability)
• PLC s can raise large sums of money by
offering their shares for sale to the public.
Disadvantages of a PLC
• Complicated and expensive to set up
• Financial information has to be made available
to the general public
• Shareholders will expect the company to do
well
• Risk of a takeover
• Shareholders own the company but may have
very little say in how the company is run
Difference between Ltd and Plc
• Plc – Public Share Ownership. Anybody can buy
and sell shares on the stock market. Share
ownership is open to the public.
• Ltd – Private Share Ownership. You have to be
invited by existing shareholders to buy shares.
They are not available to the general public.
