what is a private company, what are the private company features, what benefits from a private company, what are the Advantages and Disadvantages of Private LTD company, What are features for Transferability of share and perpetuity features
What Is a Private Limited Company?
A private limited company is another form of business structure. A private limited company is a kind of privately held small business entity. In this form of business entity limits owner liability to their shares.,Moreover Maximum limits the number of shareholders to 200, and it has restrictions over shareholders from publicly trading shares.
Features of a Private Limited Company along with the difference between private and public company:-
|Features||Public limited company||Private limited company|
|Invitation to public||Yes||No|
|Issue of prospectus||Yes||No|
|Quorum at AGM||5 Members||2 Members|
|Certificate for commencement of Business ( Mandatory)||Yes||Yes|
|A term used at the end of the name||Limited||Private Limited|
|Managerial remuneration||Can not exceed more than 11% of Net Profits (as prescribed in section 197)||No Restriction|
|Statutory meeting (Mandatory)||Yes||No|
Advantages of Private Ltd Company:-
The private company has a core advantage that is mentioned below:-
Members: You can start a private limited company with a minimum of only 2 members (maximum of 200), as per the provisions of the Companies Act 2013.
Limited liability: In the private company, the liability of each shareholder or member becomes limited. This means that if the company runs into a loss, the company shareholders are liable to sell their company shares to clear the debt or liability. The individual assets of shareholders or members are not at risk as a member are not themselves responsible.
Perpetual succession: Perpetual succession means that the company will be continued even if any owner or member dies or goes bankrupt, or even exits from the business or transfers his shares to another person.
Prospectus: Prospectus is a written detailed statement is issued by a company that goes public which means Public Company. However, there is no need for private limited companies to issue a prospectus because the general public is not invited to subscribe for the shares of the private company.
A number of directors: In the case of the private limited company there is a need for only a minimum number of only 2 directors. At least one director on the board of directors must have stayed in India for a total period of not less than 182 days in the previous calendar year. The directors and the shareholders can be the same people.
Capital: Although, under the companies act, 2013, there is a minimum paid-up share capital requirement of Rs.100000 however, this requirement has been deleted in the Companies amendment act, 2015.
So, currently, there is no minimum paid-up share capital requirement in the case of a private company. However, Private company must have minimum Authorized share capital of Rs.1,00,000.
Disadvantages of a Private Limited Company:-
The following are the disadvantages are as mentioned in brief that is:-
- Private limited company restricts transferability of its shares by its articles as per prescribed rules of company act, 2013
- The number of members, in any case, cannot exceed 50 in the private ltd company.
- Moreover, it cannot issue prospectus to the general public as it is restricted to issue shares in the General Public.
- So Concludingly, In stock exchange shares cannot be quoted.
Other Disadvantages for Private Company:-
- Smaller resources
- Lack of transferability of shares
- Poor protection to members
- No valuation of investment
- Lack of public confidence
A Private company has its own Benefit depending upon the scale of business it is traded upon. One should ponder upon the rules and restrictions that have been inculcated in the Company Act,2013 for the Establishment of Private Companies.