Advantages and disadvantages of Private Limited Company

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 benefits of private limited companies? Are there any disadvantages of a private limited company?

Private Limited Company:

A Private limited company is formed lawfully with limited liability or legal protection for its shareholders but that places restrictions on its ownership.

A Private Limited Company is a company which is privately held for small businesses. The liability of the members of a Private Limited Company is limited to the number of shares respectively held by them. Shares of Private Limited Company cannot be publicly traded.

Private Limited Company is the simplest and a very popular form of Business Registration in India. It can be registered with a minimum of two people. Limited liability protection to shareholders, ability to raise equity funds, separate legal entity status makes it the most recommended type of business entity for millions of small and medium-sized businesses that are family owned or professionally managed.

Minimum Requirement for Private Limited Company:

  • A minimum number of two Directors who are adults.
  • One of the Directors of a private limited company has to be an Indian Citizenand Indian Resident.
  • The other director(s) can be a Foreign National.
  • It is also required to have two shareholders of a company.
  • The shareholders can be natural persons or an artificial legal entity.

Private Limited Company Registration Process:

Registration of a Pvt Ltd company in India is complete an online process. Recently the MCA has replaced the earlier SPICe form with a new web form called SPICe+ (SPICe Plus). Hence, incorporating a Private Limited Company is even easier now.

Now you can Incorporate a Private Limited Company, with a Single application for Name reservation, Incorporation, DIN allotment, Mandatory issue of PAN, TAN, EPFO, ESIC, Profession Tax (Maharashtra), and Opening of Bank Account.

SPICe+ is divided in two parts as follows:

  1. Part A:Apply for the name reservation of the company in Part A of the form Spice+. it can be used for taking the name approval of the proposed Company and also for filing Company registration in one go.
  2. Part B:In Part B of the Form Spice+, apply for the following services:
  • Incorporation
  • DIN (Director’s Identification Number) allotment
  • Mandatory issue of PAN
  • Mandatory issue of TAN
  • Mandatory issue of EPFO registration
  • Mandatory issue of ESIC registration
  • Mandatory issue of Profession Tax registration (Maharashtra)
  • Mandatory Opening of Bank Account for the Company and
  • Allotment of GSTIN (if so, applied for)

Advantages of Private Limited Company:

Here are some advantages to a Private Limited Company.

  • There is a Limited risk to personal assets in Private Limited Company.
  • Ltd. Co. is a Separate Legal Entity.
  • In the Private Limited Company there would Limited Liability for members.
  • Shares of a company limited by shares are transferable by a shareholder to any other person. The transfer is easy as compared to the transfer of interest in business run as a proprietary concern or a partnership
  • Just as one person can bring a legal action in his/her own name against another in that person’s name, a company being an independent legal entity can sue and be sued in its own name.
  • A company has ‘perpetual succession’, that is continued or uninterrupted existence until it is legally dissolved.
  • For a private company, the earlier minimum number of the share capital was Rs. 1,00,000, but now there is no such minimum capital compulsion. Therefore there is no pressure of fund requirements.
  • It is easy to fetch funding in a private limited company by transferring of shares.

Disadvantages of a Private Limited Company:

  • One of the main disadvantages of a private limited company is that it restricts the transfer ability of shares by its articles.
  • In a private limited company, the number of members in any case cannot exceed 50.
  • Another disadvantage of private limited company is that it cannot issue prospectus to public.
  • In stock exchange shares cannot be quoted.

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