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Privileges of private limited company

Updated on July 31, 2018

Business men

Owners of  companies
Owners of companies

What is a private Limited Company?

A Private Limited Company is a small business set up to run a business. The liability of the business is limited to their shares. There are some limitations for a Private Limited Company. The upper limit of number of share holders is limited to 50. Public trading of shares of a private limited company is restricted.


Limited Liability

The liability of the shareholders of a private limited company is limited to their shareholding. Thus, if it incurs loss, shareholders will not pay beyond their unpaid share capital. Once formed, a private limited company has a life-time existence until and unless it is liquidated.

In the time of recessions many companies experience loss and closed their business. In such an event, the liability of the business is limited to the share holding and will not affect the personal assets of a share holder. However, in case of fraudulent activity of share holders, this limit will be removed and the shareholder will be responsible for the fraud even to his personal assets.


Continued Existence
Continued existence of a private limited company is viewed as an advantage. Even after a share holder leaves the business or the death of the owner, the business entity continues to exist. When a company is incorporated, it is treated as an independent legal entity. Which means it is able to own assets and able to sue.

Restricted Trade of shares

A shareholder who wish to sell his shares cannot sell them to outside buyers is an advantage. In such business entity, chances of hostile takeover is very low as the shareholders must agree to the liquidation, sale or transfer of shares.

Shareholder have limited options to transfer his shares is looked as a disadvantage in such type of business entities.



Name
Using the word "Private Limited" after its name is mandatory for all the private limited companies. This is to identify the nature of the company or the business entity whether it is a private limited company or a public limited company. If it is a private limited company, the liability of the company restricted to its assets or its paid up capital. This information is vital for individuals to lend money or goods to that business entity Giving more than the asset is a risk for the lender, as they will not be able to recover their money, in case of loss.

Minimum number of share holders

In case of a public company, the requirement of minimum number of share holders to form a company is 7. Whereas, in case of a Private Limited company, the minimum number of share holders are 2. This is a greatest advantage as you do not have to wait for willing 7 members to come together to from a company or a business entity which have legal right to do business and own assets. Immediately after you find another share holder, you can start your business.


Legal formalities
Legal formalities are very less for a private limited company compared to a Public Limited company which has a very long and time-consuming list of legal formalities to be completed before starting the business.

Confidentiality

Confidentiality
It is an added advantage of a Private limited company that there is no need to disclose the confidential information to the general public as against the requirement of a public company. Informations like, business secrets, transactions as well as legal settlements, executive compensation etc. are more secure in a private limited company.

Long Term Planning
In a public limited company there is pressure on the managers to increase the profit in a short time in order to appreciate the stock value of the company in the public market. But in a Pviate limited company, there is no such pressure to get profit in a short time hence, Long term planning is possible and the company can run the business without any outside pressure as in a Public company.


Disclosing financial reports.
There is no compulsion to disclose the results of a private company quarterly or annually to the general public. Whereas in a Public company, it is mandatory to disclose the financial results quarterly and annually.


Decision making and Management
Because of the number of shareholders are less, Managing the business and decision making is very easy. In a public company it is more complex and time consuming exercise due to the large number of share holders.

Privileges of private limited company

Privileges of private limited company

As a public company has large numbers of investors, such companies are protected shareholders interests by framing and following strict rules. But in a private company, the membership is usually restricted to the promoters, their friends and relatives. It raises its capital privately from a limited number of members. The members of the public are not substantially interested in such companies. Therefore many of the provisions of the Companies Act are not applicable to a private company. Thus, a private company is granted a number of exemptions or privileges. These are as follows:

Exemptions and privileges

  1. Number of Members: Two members can form a private limited company
  2. Minimum Subscription: A private company need not wait till the receipt of minimum subscription.  It can allot shares as soon as it receives its subscription.
  3. Commencement of Business: Immediately after incorporation a Private Company can start its business operation.
  4. Subsequent Issue of Shares: A private company can issue shares to outsiders and need not offer its shares first to its existing share holders.
  5. Prospectus: A private company need not issue a prospectus or file with the Registrar of companies a statement in lieu of prospectus before allotment of its shares.
  6. Assistance for Purchase of Shares: For the purchase of its own shares, a private company can help its prospective members or members financially.
  7. Quorum: To form the quorum only tow members who are personally present at the general meeting of shareholders required, unless otherwise provided in the articles.
  8. Statutory Meeting and report:  There is no need of holding statutory meeting or file a report with the Registrar of Companies in the case of a  privatecompany.
  9. Provisions Regarding Directors: Directors need not possess qualifying shares.  A private company may have a minimum two directors.  They need not file their consent to act as such with the registrar.
  10. Managerial Remuneration: There is no restriction on the total managerial remuneration in private company as against the 11 percent of net profit applicable to a Public company.
  11. Demand for poll: A poll may be demanded by only one member, if a resolution is being discussed in a meeting and the number of its members is seven or less than seven.  If more than seven members are present, such a poll may be demanded by only two members.

Minimum and maximum requirements of a Pvt. Ltd. Compay

Members: Minimum two and Maximum 200 (Maximum was 50 before the Companies Act 2013)

Directors: Minimum two One of the director must be a resident of India (He should have stayed in India at least 182 days in a previous calendar year. Each directors should have a DIN number (Director Identification Number) which is issued by the ministry of corporate affairs.

Name: The name of the company should end with the word "Private Limited."

Registered office Address: A company should have a registered office address.

Digital Signature: It is desired to obtain a digital signature as most of the electronics documents are signed with a digital signature.

Professional Certification: Chartered accountant and company secretary shall be required at the time of incorporation which can be outsourced.

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      Besda 

      6 years ago

      Better love than every things

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      Cassandra Mantis 

      8 years ago from UK and Nerujenia

      Interesting article on Private limited companies.

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