Discuss the advantages and disadvantages of private limited companies.
aqa
Business ownership
A Level/AS Level/O Level
Free Essay Outline
Introduction
Briefly define what a private limited company is. State that this essay will discuss the advantages and disadvantages of this type of business structure.
Advantages of Private Limited Companies
Limited Liability
Explain the concept of limited liability. Discuss how this protects the personal assets of the shareholders. Provide an example to illustrate the point.
Access to Capital
Explain how being a private limited company allows for more opportunities to raise capital compared to a sole trader or partnership. Discuss the ability to sell shares (privately) to raise funds.
Continuity and Succession Planning
Explain how a private limited company is a separate legal entity. Discuss how this ensures the business continues to exist even if a shareholder leaves or passes away. Explain the ease of transferring ownership.
Professional Image and Credibility
Discuss how being registered as a private limited company can enhance the business's professional image and credibility in the eyes of customers, suppliers, and investors. Explain how this can lead to increased trust and potentially more business opportunities.
Disadvantages of Private Limited Companies
Setup and Administration
Explain that the process of forming a private limited company is more complex and costly compared to a sole trader or partnership. Discuss the legal requirements, paperwork, and potential professional fees involved.
Financial Transparency
Discuss the requirement for private limited companies to publicly file financial accounts. Explain how this can be a disadvantage for businesses that prefer to keep their financial information private.
Potential for Disputes
Explain how having multiple shareholders can lead to potential disagreements and conflicts, especially regarding business decisions and profit sharing. Discuss the importance of clear shareholder agreements.
Dividend Tax
Explain how shareholders in a private limited company typically need to pay tax on dividends received. Discuss how this double taxation (corporation tax at the company level and income tax on dividends) can be a disadvantage compared to some other business structures.
Conclusion
Summarize the main advantages and disadvantages of private limited companies. State that the best business structure depends on individual circumstances and specific business needs. Suggest that seeking professional advice is crucial when choosing a business structure.
Free Essay
1. Introduction
A private limited company (PLC) is a type of business that is owned by shareholders. Shareholders have limited liability, which means that they are only liable for the amount of money that they have invested in the company. This can be an advantage for business owners, as it protects their personal assets in the event that the company goes bankrupt.
2. Advantages of Private Limited Companies
Limited liability: As mentioned above, shareholders in a PLC have limited liability. This means that they are not personally liable for the debts and obligations of the company. This can be a major advantage for business owners, as it protects their personal assets.
Separate legal entity: A PLC is a separate legal entity from its owners. This means that the company can enter into contracts, own property, and sue and be sued in its own name. This can be an advantage for business owners, as it allows them to keep their business and personal finances separate.
Continuity: A PLC can continue to exist even if its owners change. This is because the company is a separate legal entity from its owners. This can be an advantage for business owners, as it allows them to pass on their business to their heirs or sell it to another company.
3. Disadvantages of Private Limited Companies
More expensive: PLCs are typically more expensive to set up and maintain than other types of businesses. This is because they are required to file annual reports with the government and to have their accounts audited by an independent accountant.
More complex: PLCs are also more complex to manage than other types of businesses. This is because they are required to comply with a number of legal and regulatory requirements.
Double taxation: PLCs are subject to double taxation. This means that the company's profits are taxed twice, once at the corporate level and again at the shareholder level. This can be a disadvantage for business owners, as it can reduce their after-tax profits.
4. Conclusion
PLCs offer a number of advantages over other types of businesses, including limited liability, separate legal entity, and continuity. However, they are also more expensive and complex to set up and maintain. Business owners should carefully consider the advantages and disadvantages of PLCs before deciding whether to form one.
Examples
Here are some examples of the advantages and disadvantages of PLCs:
⭐Advantages:
In 2018, the average salary for a CEO of a PLC in the UK was £3.1 million. This is significantly higher than the average salary for CEOs of other types of businesses.
In 2019, the FTSE 100 Index, which is composed of the 100 largest PLCs in the UK, had a total market capitalization of £2.2 trillion. This shows that PLCs can be very successful businesses.
⭐Disadvantages:
In 2018, the average cost of setting up a PLC in the UK was £10,000. This is significantly higher than the cost of setting up other types of businesses.
PLCs are required to file annual reports with the government and to have their accounts audited by an independent accountant. This can be a time-consuming and expensive process.