A Private Limited Company (Ltd or ‘Limited’) is one of the most common forms of business structure. Companies have a distinct legal identity, unlike Partnerships, which means that they can enter into contracts themselves, rather than the individual partners being party to the contract.
The main benefit of a corporate structure such as a Private Limited Company is that the shareholders (or ‘members’) are simply the owners of the Company, and are not automatically liable for the actions or debts of the Company.
Private Limited Companies are owned by shareholders and run by directors. Often, and particularly with small to medium-sized companies, these can be the same persons.
Corporate governance is very important for Private Limited Companies. Directors (known as the ‘Board’) act as ‘officers’ of the company, which effectively means that they are employed by the company to run it, including entering into contracts on behalf of the company with clients and customers, suppliers or even with banks, lenders or investors.
Directors are given the authority to do this based on their contract with the company, the Articles of Association or Constitution of the company, and the Companies Act 2006.
Shareholders, or owners, of the company will not enter into agreements on behalf of the company, as they can only affect how a company is run at General Meetings of the Company, and only in a very prescribed and regimented way.
The structure and rules relating to starting of a Company can place a burden on those tasked with running it. It is essential that the structure and rules are correctly set up with legal advice from the outset. Blurring the important distinction between the owners and operators of a company (i.e. the Board) can result in a loss of the all important limitation of liability principle for owners.
There are a number of different corporate structures that you may need to consider, including companies limited by guarantee (i.e. with no share capital). The rules and regulations of the Company (called the Memorandum and Articles of Association) are also very important to get right, and can be drafted in ways to help you get the most out of the running of your company, or if the company is to be formed for a particular purpose, such as property management companies, development companies or joint venture companies.
If you are considering starting a Private Limited Company, please speak to our Corporate team about how best to approach this. They can advise you on whether this is the best business structure for you, and ensure that the Shareholders’ Agreement between you and your members and Company Memorandum and Articles of Association are drafted correctly and deal with everything necessary.