Private Limited Company Definition, Advantage and Disadvantage
Private Limited Company is a Company which has a Minimum of Two members and a Maximum of 200 Members. To calculate members, present and past employees are excluded.
- It can not invite general public to subscribe its securities.
- It offers Limited Liability or Legal Protection for its Shareholders.
- It lies between a partnership and widely owned public company.
- It is identified by the company name, number of members, formation, directors, meetings, shares, etc.
- It is “Limited by Shares” i.e. there are shareholders associated with the company and the theoretical value of the shares & any paid in return for the issue of shares by the corporation is limited to the capital which is initially invested.
Private limited company is the most popular corporate entity among small, medium and large businesses in India due to various advantages.
- Ideal for Startups & Growing Business
- Easy to Get Funding, Raise Venture Capital Fund
- Has Limited Liability
Earlier, the shareholders had to pay a minimum of ₹ 1 lakh as a subscription amount to incorporate a private limited company. Now, there is no such requirement.
Advantages of Private Limited Company
- OWNERSHIP : In a private company, shares can be sold or transferred to other people by the choice of the promoters like promoters, management or a group of private investors and not sold in open market. Therefore there is less complexity and confusion in decision making and management.
- MINIMUM NUMBER OF SHAREHOLDERS: For a private company, a minimum number of required shareholders is 2, whereas, for a public company, a minimum of 7 shareholders are required.
- MINIMUM SHARE CAPITAL: A public company requires minimum share capital of Rs. 5,00,000. For a private company, the earlier minimum number of share capital was Rs. 1,00,000, but now there is no such minimum compulsion. Therefore there is no pressure of fund requirements.
- SEPARATE LEGAL ENTITY: A PVT Limited company has a separate identity and is recognized as a separate company under law. The company can also own property due to this feature.
- PERPETUAL SUCCESSION: It is not affected by the status of its owner i.e. inability to continue or death of the owner does not obstruct the proceedings of the company.
Disadvantages of Private Limited Company:
- Private limited company restricts transferability of shares by its articles.
- In a private limited company the number of members in any case cannot exceed 200.
- It cannot take money from public.
- Yearly audit and Income Tax filing is mandatory
However still Private Limited Company is the best form of business in India for newly set up companies and start ups.
Contact us today for formation and compliance of Private Limtied Company.