Before starting a business, there are many things that run through our mind and one question that comes to everyone‘s mind is whether to incorporate a private limited company or not? What are the Advantages of private limited companies? Are there some disadvantages of a private limited company?
Advantages of Private Limited Company:
Here are some advantages of a Pvt Ltd Co:-
No Minimum Capital:
No minimum capital is required to form a Private Limited Company. A Private Limited Company can be registered with a mere sum of Rs. 10,000 as total Authorized Share capital.
Separate Legal Entity:
A Private Limited Company is a separate legal identity in the court of the law, meaning assets and liabilities of the business are not the same as the assets and liabilities of the directors. Both are counted as different. A private limited company separates Management and Ownership and thus, managers are responsible for the company‘s success and are also answerable for the company’s loss.
If the company undergoes financial distress because of whatsoever reasons, the personal assets of members will not be used to pay the debts of the Company as the liability of the person is limited.
For e.g. If a private Ltd. takes any loan and is unable to pay off, the members are responsible to pay only that much what proportion they own towards their own shareholding i.e. the unpaid share value. Which means, if you've got no balance payable towards the quantity of shares you hold, you're not payable towards any debt payable by the corporate although the debt/credit amount remains unpaid.
A Private Limited Company in India is the only form of business except Public Limited Companies that can raise funds from the Venture Capitalists or Angel investors.
Free & Easy transfer of shares:
Shares of a corporation limited by shares are transferable by a shareholder t the other person. The transfer is easy as compared to the transfer of an interest in a business run as a proprietary concern or a partnership. Filing and signing a share transfer form and delivering the customer of the shares along side share certificate can easily transfer shares.
A Private Limited company has ‘perpetual succession’, that is continued or uninterrupted existence until it is legally dissolved. A organisation, being a independent legal person, is unaffected by the death or other departure of any member but continues to be existing no matter the changes in membership. Perpetual succession is one of the most important characteristics of a company.
In private Limited Company, 100% Foreign Direct Investment is allowed that means any foreign entity or foreign person can directly invest in a Private Limited Company.
The particulars of the company are available on a public database. Which improves the credibility of the company as it makes it easy to authenticate the details
Disadvantages of a Private Limited Company:
- One of the most disadvantages of a private Ltd. is that it limit the transfer ability of shares by its articles.
- In a private limited company the number of shareholders in any case cannot exceed 50.
- Another disadvantage of private Ltd. is that it cannot issue prospectus to public.
- In stock exchange shares cannot be quoted.