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Unlimited liability can be a major disadvantage for sole traders and partnerships. Private limited companies have limited liability, meaning an investor only loses the initial stake if a company goes bust.

In law, a private limited company is separate from the people who own it. Its finances are separate from their personal finances. Because limited companies have their own legal identity, their owners are not personally liable for the firm's debts.

The ownership of a limited company is divided up into equal parts called shares. Whoever owns one or more of these is called a shareholder. Rather than owning the company, they are investors in this separate .

A limited company is private when its shares are not available to the public by being bought and sold on the stock exchange.

Advantages

Private limited companies are owned by one or more shareholders. Quite often these shareholders are supportive family members.

Profits are only shared between shareholders. They receive this as a dividend.

Limited companies are able to raise money by borrowing and through the share issue of ordinary shares.

If the company fails, the investors in a limited company are protected by the rules of limited liability.

Disadvantages

Limited companies must be registered with the Registar of Companies.

The legal set up costs are expensive. Limited companies must use documents called Memorandum of Association and Articles of Association.

Because profits are only shared with shareholders it is harder to motivate and control workers who do not hold shares.