limited company

Advantages and Disadvantages of a Limited Company

What are the advantages of a Limited Company?

A limited company has following advantages:

  • Members’ (the directors and shareholders) financial liability is limited to the amount of money they have paid for shares.

  • The management structure is clearly defined, which makes it easy to appoint, retire or remove directors.

  • If extra capital is needed, it can be raised by selling more shares privately.

  • It is simple to admit more members.

  • The death, bankruptcy or withdrawal of capital by one member does not affect the company’s ability to trade.

  • The disposal of the whole or part of the business is easily arranged.

  • High status.

What are the disadvantages of a Limited Company?

A limited company has following disadvantages:

  • Requirement to register the company with the registrar of companies and provide annual returns and audited statement of accounts. All details of the company are available for public inspection so there can be no secrecy. There are penalties for failing to make returns.

  • Can be more expensive to set up.

  • May need professional help to form.

  • As a director, you are treated as an employee and must pay tax.

  • The advantages of limited liability status are increasingly being undermined by banks, finance house, landlords and suppliers who require personal guarantees from the directors before they will do business.


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