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What are the advantages and disadvantages of private limited companies?

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Quick Answer

Some advantages of a private limited company are limited liability, ease of use and that it is a legal entity; disadvantages include the required paperwork, limited growth and the expenses involved. Limited companies are small businesses usually comprised of family or close friends. These companies may issue stock, but do not trade on the public exchange.

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Full Answer

If a person is an independent contractor or is interested in starting a small business, he or she may choose to start up a limited partnership. Advantages and disadvantages should all be taken into consideration prior to making the final decision.

One great benefit of a limited partnership is the fact that personal liability is limited to the company's owners. This means that if the company experiences some type of financial difficulty due to normal business activity, then the shareholder's personal assets are not at risk. It is also fairly easy to manage. Management on the back end can be as simple as submitting monthly spreadsheets to an accountant. Since the company is a legal entity, it has more credibility.

Organizational skills are important, since there are forms and paperwork required that should be submitted on a regular basis. As a limited partnership, company growth is limited because maximum shareholders top out at 50. Also, some may find setting up the company is expensive, since the costs for a limited partnership often exceed those for a sole trader or partnership.

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