Advantages & Disadvantages of Limited Company

A limited liability company (LLC) is a legal form of company whose liability is limited. It is owned by shareholders or members who have purchased shares issued by the company.

The Advantages of a Limited Company are as follows:
1) The liability of the shareholders is limited to the amount unpaid on the shares held by them. They are protected from some or all liability for acts and debts of the company, and this provides a sense of financial security for investors in the company.
2) A limited company and its shareholders are separate entities. The company will continue its operations even if its members retire, and this provides a sense of security for employees and other members.
3) Limited Companies are only taxed on their profits and as such are not subject to the higher personal tax rates placed on sole traders.
4) The company can issue shares to its employees via a company share scheme, and thereby reward the employees for their work.
5) A Public Limited Company (PLC) can raise finance through the issue of new shares. If the company needs more funds to expand its existing operations, it can simply sell more shares to the public.
6) The use of title ‘Ltd’ or ‘Limited’ as part of the trading name can add an air of professionalism to the company.

The Disadvantages of a Limited Company are:
1) A Limited Company can be expensive to set-up as it incurs legal and administrative costs.
2) The management structure of a listed company may be unfamiliar to many. There are more restrictive rules governing the accounts and bookkeeping of limited companies than sole trader businesses. A company must file a corporation tax return.
3) The issue of shares to raise company funds can further dilute the power of management as more and more people have a say or voting right in the company meetings.

* Next: Advantages & Disadvantages of Ordinary Shares