Private Limited Company

In Zimbabwe, a Private Limited Company is the most typical type of business entity. Because of its limited liability, shareholders are only liable for the debts of the company up to the number of shares they own in it. A Private Limited Company is only permitted to have a maximum of 50 shareholders and a minimum of 2 directors.

Advantages of a Private Limited Company

Limited Liability

The most significant benefit of a private limited company is that the owners’ liability is limited. This means that if the company goes bankrupt, the shareholders’ assets are protected. If the company goes bankrupt, the owners are only liable for the money they put into it. The money of any company stays with the company and does not fall on the shoulders of the owners. This is a significant benefit for new businesses because it protects their assets from potential business failures. Limited liability is one of the primary advantages of forming a private limited company.

Tax Efficient

Because they can claim corporation tax relief on their profits, private limited companies are tax efficient. Businesses can save money and increase profits by doing so. Furthermore, private limited companies are permitted to pay dividends to their shareholders, which are taxed at a lower rate. Furthermore, there are several other tax benefits available to businesses, such as capital allowances and R&D tax credits.

Separate Legal Entity

A private limited company is legally distinct from its shareholders and directors. This means the company can enter into contracts with other businesses and individuals and is responsible for its debts. In other words, in the event of a business’s debts or bankruptcy, creditors cannot seek direct payment from the owners’ personal assets. Shareholders are the only people who can claim money directly from the company’s obligations, not those incurred by its owners on behalf of the business. This can provide important protection for shareholders by limiting their liability.

Easier to raise Capital

Raising capital for a business can be difficult, and private limited companies are becoming more popular as they attract more investors due to their credibility. This can be accomplished by issuing new stock, taking out loans, or issuing bonds. Furthermore, when operating as a private limited company, it is often easier to approach high net-worth individuals for funding. This is because, unlike shareholders in public companies, these potential investors do not require an active role in the day-to-day management of the business.

Easier to maintain

As private limited companies have grown in popularity, many online accounting software providers have incorporated these features into their systems, making financial management extremely simple with the ability to set up an unlimited number of bank accounts, classes, income, and expenditure items. These include submitting annual returns and reports to Companies House, holding shareholder meetings, and maintaining accurate company records. Furthermore, private limited companies are required to appoint at least one director and one company secretary. This can be beneficial for small businesses that lack the time or resources to manage all administrative tasks on their own.

Flexible Management Structure

Private limited companies are popular for sole proprietors or small businesses that lack the resources to form a public limited company. This can be beneficial for businesses that want to keep control of their operations in the hands of a small group of people. Private limited companies give the owners complete control over the management of the business. This is simple to do with online systems like ‘FreeAgent.’ This also gives shareholders the ability to manage the company through an incorporated board of directors and appoint committees as needed.

Professional Image

A private limited company gives a professional image to businesses, which can be important when attracting new customers or investors. It also shows that the industry is established and has longevity. This is because private limited companies are more credible and established than sole traders or partnerships. In addition, private limited companies often have their website and letterhead, giving customers and suppliers a sense of trust in the business.

Protection from Creditors

As previously stated, one of the most important advantages of forming a private limited company is that it provides protection from creditors. This is due to the fact that the corporation is a separate legal entity from its shareholders and directors. If the company goes into debt or declares bankruptcy, creditors cannot seek direct payment from the owners’ personal assets. This can provide important protection for shareholders and directors by limiting their liability.

Disadvantages of a Private Limited Company

• A Private Limited Company’s articles prohibit the transferability of shares, which is one of its principal drawbacks.
• In any case, there can never be more than 50 shareholders in a private limited company.
• A Private Limited Company’s inability to publicly release prospectuses is still another drawback.
• It is not possible to quote shares on the stock exchange.

Private Business Corporation

The greatest substitute for a Private Limited Company is a Private Business Corporation. Most single proprietors, small enterprises, and people who may desire to act as individuals, such as consultants, architects, etc., choose this company form. It has members rather than stockholders and directors. The member’s financial liability is limited to the sum of money they contributed to the company’s formation.

Advantages of a Private Business Corporation 

• PBCs’ main benefit is that they provide liability protection comparable to that of a PLC.
• May be established with just one member (unlike partnerships which require at least two people)
• It is up to the business owner to decide whether the PBC should be taxed like a partnership or sole proprietorship, where the owner is subject to individual taxation (i.e., just file your individual taxes and deduct your business expenses on your individual form), or like a PLC, where the owner files a separate tax statement for the PBC.\
• If PBC fulfills the threshold, it can obtain tax registration, tax clearance, and VAT registration.
• Similar to a Private Limited Company, PBCs can take part in government and private tenders.
• The PBC is easier and less expensive to register with the Companies Registrar than a PLC.

Disadvantages of a Private Business Corporation 

• Registrar of Companies must receive Statement of Incorporation
• It is necessary to prepare an operational agreement that serves as the members’ agreement and outlines the PBC’s operations and business conduct (this may need to be filed with the State, but in general, a copy should be kept with the PBC’s records).
• PBC renewal payments must be paid annually, along with certain papers.

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