Private Limited Companies (SQA National 5 Business Management): Revision Note
Exam code: X810 75
Limited liability
Limited liability means that owners (shareholders) of private limited companies and public limited companies can only lose the original amount they invested in the business if it fails
Implications of limited liability
Companies are incorporated, and owners are considered a separate legal entity to the business
This means that if a company fails, the owners would lose their investment (shares) but would not have to use their assets to meet additional debts or legal fees
In most cases, shareholders cannot be held responsible for unlawful acts committed by those connected with the business
Limited liability can encourage investment because shareholders know their personal assets are protected
This makes it easier for companies to raise capital, as more people are willing to buy shares
Owners can take more business risks, knowing their personal assets are not at risk
Private limited companies
A private limited company is a business owned by private shareholders with limited liability and restricted share sales
The ownership of the private limited company is broken down into a specified number of shares
These shares can be held in their entirety by the entrepreneur, sold to friends and family or to venture capitalists
These owners are called shareholders
Private limited companies are registered
They need to submit details of financial performance and any changes in ownership each year
An entrepreneur may choose to form a private limited company to provide more financial security, as they will benefit from limited liability
Decision-making often rests with the person appointed to run the company, often called the Managing Director or CEO
Some large businesses choose to remain as private limited companies
Family shareholders can retain control over the business
Shareholders prefer to avoid the scrutiny that comes with flotation
They may have little need to raise large sums of capital and can fulfil their objectives as a private limited company
Evaluating private limited companies
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Case Study
Loch Ness by Jacobite is a tourism business based in Inverness that runs cruises on Loch Ness and trips to attractions such as Urquhart Castle
The company needed to choose a suitable ownership structure as it grew and invested in large, expensive boats
Managing director Freda decided to register the business as a private limited company (Ltd) to protect shareholders through limited liability and to keep control within the family and trusted directors
This decision gave the business a more professional image, helping it build credibility with tourists and strengthen its reputation in the Highland tourism industry
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