Before starting a business, there are many things that run through our mind and one question that comes to everyone’s mind is whether to incorporate a Private Limited Company or not. What are the Benefits of a Private Company Limited by Shares?
A private Limited company is owned by a person or small group of entities /individuals with strict control of the businesses.
What exactly is the meaning of Ltd.?
The essential characteristics of a limited company are as follows:
- The owners of a private company have limited liability. The company’s liability cannot be assumed as theirs.
- An Ltd. company has a limited number of shareholders.
- The owners are not allowed to sell shares/stocks publicly.
- The number of owners is limited to fifty shareholders.
- Advantages of a Private Limited Company
What is Ltd. in business?
Ltd. in business means the shareholder has limited liability to the value of the stock. An Ltd. business has general advantages that set them apart from unlimited enterprises.
Essentially, there is a need to consider what Ltd. is in the business to understand these benefits. An Ltd. business combines the limited liability of a corporation with the intimacy of a sole proprietorship or small partnership. This aspect appeals to businesses because of flexibility.
Moreover, the Ltd business has protection because of limited liability. The owners are protected since the company is considered a separate legal entity. Legally, a legal entity can own, use and operate independently. As a result, the owners are free from their liability.
What are the Benefits of a Private Limited Company?
The key benefits of a Private Company Limited by Shares (LTD) Registration in Nigeria are listed below:
- Limited Liability
Ltd. business ensures owners have limited liability. Owners’ resources will not be touched when a company owes money to other entities. To recover the debts, the authorities will only confiscate resources owned by the entity. The shareholders will lose only their stock investments but not their savings or investments. In contrast, sole proprietorships have unlimited liability. As such, the owners are not protected in case of a lawsuit. Therefore, their assets can be used to cover the damages.
However, the protection in the Ltd. business is negated in case of fraud. When a company is involved in a legal battle, a court can decide to use its resources to recover the debt. The owners’ assets are protected. However, if a member conducts fraud and allows their perpetuation, the law will not protect their resources.
A Private Company Limited by Shares business enjoys restricted trade of shares. Restricting trade in shares is critical because it ensures that the possibility of a hostile takeover is eliminated. Notably, what is limited in business are the shares. Furthermore, shareholders are limited in how they can sell their shares. Subsequently, If one wants to sell shares, they will have to trade with another member. As a result, one cannot trade stock with outsiders.
Moreover, the shareholders have to agree on how to transfer the shares. This action reduces the possibility of a hostile takeover. Essentially, a hostile takeover is when powerful businesses buy many stocks to control another business. When this is the case, the shareholders lose control of the business. This is not likely to happen in private limited companies.
- Continued Existence
Unlike a sole proprietorship, an Ltd. business is a separate legal entity. Typically, private companies can exist when the owners die. This is not the case in a sole proprietorship, where the owners control all business activities. The lack of legal separation connotes that the business will exist as long as the owner does. However, the Ltd. company is like a corporation, which means that it will continue its operation in case of the owner’s demise.
- Professional status
Your professional status and image will improve considerably when you start trading as a limited company. Whilst the activities, ownership structure, and internal management of your business may be the same as when you were operating as a sole trader, companies are held in much higher regard and create a better impression.
The difference in perception stems largely from the fact that incorporated businesses are more rigorously monitored. Limited companies have more complex accounting and reporting requirements, their statutory compliance obligations are much greater, and their corporate details and accounts are published on public records where they can be inspected by other businesses and members of the general public.
A more professional image, coupled with the benefits of corporate transparency, could also benefit your business in many other ways, such as:
- attracting new clients and investors
- accessing a wider range of lending opportunities
- expanding into different locations or markets
- creating a valuable and trusted brand identity
- competing on an even playing field with other businesses in your industry sector
- Separate legal identity
Unlike the sole trader structure, a limited company is a legal ‘person’ in its own right, with an entirely separate identity from its owners and directors. As a result, companies can enter into contracts in their own name and are responsible for their own debts and liabilities.
The owners are only liable for the value of their unpaid shares or personal guarantees, rather than the full extent of the company’s liabilities. If a company becomes insolvent, it is the business itself that is declared bankrupt, not the shareholders or directors.
Furthermore, this means that companies enjoy perpetual succession and survive the death or ownership of the original members. The business can be sold or transferred to other people at any time, thus enabling the company to continue to exist with minimal disruption to clients and employees.
- Owning Property
A company being a juristic person, can acquire, own, enjoy and alienate, property in its own name. No shareholder can make any claim upon the property of the company so long as the company is a going concern. The shareholders are not the owners of the company’s property. The company itself is the true owner.
- Capacity to sue and be sued
To sue means to institute legal proceedings against or to bring a suit in a court of law. Just as one person can bring a legal action in his/her own name against another in that person’s name, a company being an independent legal entity can sue and also be sued in its own name.
- Dual Relationship
In the company form of organization it is possible for a company to make a valid and effective contract with any of its members. It is also possible for a person to be in control of a company and at the same time be in its employment. Thus, a person can at the same time be a shareholder, creditor, director, and also an employee of the company.
- Borrowing Capacity
A company enjoys better avenues for borrowing of funds. It can issue debentures, secured as well as unsecured, and can also accept deposits from the public, etc. Even banking and financial institutions prefer to render large financial assistance to a company rather than partnership firms or proprietary concerns.
- Credibility and trust
The professional status of a limited company structure will add valuable prestige and credibility to your business. In fact, certain businesses and agencies (particularly in the IT, finance, and construction industries) are only prepared to engage with other incorporated businesses. This is usually due to the level of risk involved in the contracts they award.
If you’re likely to be dealing with sensitive information, complex IT projects, or large-scale construction contracts, for example, your clients will demand limited liability protection from all contractors because the associated risk of such work is particularly high.
In most cases, sole traders are simply not considered for these types of contracts, so a company really can improve its competitive advantage.
- Investment and lending opportunities
Companies can have multiple owners, so it is possible to raise additional capital by selling portions (‘shares’) in the business to new investors. Generally, companies also have access to more lending opportunities than sole traders, and certain banks will only lend to incorporated businesses.
Furthermore, it is often possible to secure a loan for a company without the need for shareholders or directors to provide security against their own property.
- Protecting a company name
All company names must be entirely unique, so no two companies can be set up with the same name, or even names that are very similar to one another. The official name of your company cannot be registered and used by any other business. A sole trader’s business name does not enjoy this protection.
- Splitting income
If you own a limited by shares company, you can issue shares to your spouse or family members. This will allow you to split your business profits and minimize personal tax liabilities.
Overall, private limited companies offer several key benefits which can be extremely useful for businesses of all sizes. By incorporating and adhering to the relevant formalities, companies can enjoy limited liability, tax advantages, and more significant business credibility. In addition, private limited companies are much easier to raise capital from shareholders and third-party investors. With all these benefits in mind, it’s easy to see why this company is so popular amongst entrepreneurs and small businesses.
If you are still not sure which one to pick for your business, feel free to reach out to us and our experts will guide you in making the right decision.
SplashDict is equipped with accredited experts and the necessary resources to assist you in completing the Incorporation of a Private Company Limited by Shares (LTD) in Nigeria.
- Instant Delivery of Digital Copies of all incorporation documents once approved (Certificate Of registration, Status Report, MEMART, and Certified True Copy of Application Form).
- Support for the drafting of Memorandum and Articles of association.
- Bank Account Opening support.
- Priority Customer Support.
- 3 – 14 days delivery.