PRIVATE LIMITED COMPANY
A private limited company is a privately held business entity. It is privately held by the shareholders and the maximum shareholders should not be more than 50. The liability arrangement in a private limited company is that of a limited partnership, wherein the liability of a shareholder extends only up to the number of shares held by them. Beyond the value of the shares, the shareholders cannot be held liable. Before the registration of a private limited company, its objectives are determined. The governing body for such a company is the Ministry of Corporate Affairs (MCA).
Section 2 (68) of the Companies A, 2013ct defines a Private Company as follows:
“A Company having a minimum paid-up share capital as may be prescribed, and which by its articles,— (i) restricts the right to transfer its shares; (ii) except in case of One Person Company, limits the number of its members to two hundred; (iii) prohibits any invitation to the public to subscribe for any securities of the company”
Characteristics of a Private Limited Company:
In order to start a private limited company, like any other company a minimum of two shareholders is required. However, because it is a small business holding enterprise, there is also a maximum cap on the number of members fixed at 200. There is also a requirement of two directors to run the company.
- Limited Liability Structure:
In a private limited company, the liability of each member or shareholders is limited. Therefore, even in the case of loss under any circumstances then its shareholders are liable to sell their own assets for payment. The personal, individual assets of the shareholders are not at risk.
- Separate Legal Entity:
A private limited company is a separate legal entity and continues in perpetual succession. Meaning that even if all the members die, or the company becomes insolvent or bankrupt, the company still exists in the eyes of the law. The life of the company will be perpetual, not affected by the lives of its shareholders or members unless dissolved by way of resolution
- Minimum Paid Up Capital:
A private limited company requires to have and maintain a minimum paid-up capital of Rs. 1 lakh. It could go higher, as prescribed by MCA from time to time.
- Minimum subscription:
Subscription here refers to the amount received by the company by way of issuance of shares in a given period of time. Therefore, in a given period of time before the commencement of the business, a company is required to receive 90% of the total worth of all the shares. Failing this in the absence of the minimum subscription. The commencement of business is not allowed.
Advantages of Private Limited Company
- Limited Liability:
There is a limited liability, which means the members of the company are not at the risk of losing private assets. If a company fails, the shareholders are liable to sell their assets for payment.
- Less number of shareholders:
A private limited company can be started with just two shareholders, unlike a public company that requires seven.
As the company’s shares are owned by investors, founders and management, the owners are at the liberty of transferring and selling their shares to others. Through this, there is also less complexity and confusion.
- Uninterrupted existence:
As the company is a legal entity until it is legally shut down, the company runs even after the death or departure of any member.
Disadvantages of Private Limited Company
All though there are many benefits of registering a private limited company, the compliance formalities and winding up may be time-consuming and complicated. Another major disadvantage is that it requires a minimum of two persons to act as Directors and shareholders.