Private Limited Company (Pvt. Ltd. Co.) - Features & Benefits

What is meaning of private limited company?

A private limited company is a company which is incorporated for small businesses and ownership of which is closely held by few peoples only. Members / shareholders of a Private Limited Company have limited liability to the amount of shares held by them. Shares of Private Limited Company are available for public trading.

Features of Private Limited Company

1. Limited Liability– As stated above, the liability of each member / shareholders of private limited company are limited. Meaning of limited liability is that if a company faces loss in business by whatever reason then liability of its shareholders is limited to the extent of their share capital invested in company. The personal, individual assets of the shareholders / members are not at risk at all.
2. Members– for starting a private limited company, as per  Companies Act, 2013 few members are mandatorily required:

         Minimum – 2 members / shareholder

         Maximum – 200 members / shareholder

3. Directors– a private company needs to have minimum two directors to run the day to day operations of the company and there is no any upper limit.
4. Paid-up capital– Earlier minimum paid-up capital of Rs 1 lakh was required to incorporate a private limited company but now this limit has been relaxed and one can incorporate private limited company by lower amount of paid up capital of Rs. 10,000/- also or such higher amount which may be prescribed from time to time.
5. Perpetual succession– Existence of company is forever. Means to say that the life / existence of a company is not effected by death, insolvency, the bankruptcy of any of its members / directors. This leads to the perpetual succession of the company.
6. Name– all the private companies are mandatorily required to use the word private limited after its name.
7. Prospectus- Provisions related with prospectus are not applicable to private limited company and are applicable on public limited company only.

Procedure to register Private Limited Company

To understand detailed procedure to register  / incorporate a private limited company refer below article:

https://www.profzilla.com/articles/post/incorporation-of-a-private-limited-company-pvt.-ltd.-company

Advantages / Benefits of Private Limited Companies

1. OWNERSHIP CLOSELY HELD

In a private company, are owned by founders, management or a group of private investors  and transferred to others with the consent / knowledge of owners only. Shares are not traded in public like public limited company. So the ownership of private limited companies is always remains very closely held.

2. LOWER NUMBER OF SHAREHOLDERS

         Minimum number of shareholders required for private limited company are 2 whereas the same is 7 in case public limited company.

3. LIMIT OVER MAXIMUM NUMBER OF SHAREHOLDER

In case of public limited company there is no any upper limit on number of members / shareholders but in case of private limited company there is cap of maximum 200 members / shareholder. So the formality / compliances related to shareholder / shares remain limited.

4. SEPARATE LEGAL ENTITY

         A company is a separate legal entity and a juristic person established under the Act. A juristic person is a person who is not a natural person or human being. The members / shareholders of a company have no liability to the creditors / financer of the Company

5. LOWER AMOUNT OF MINIMUM SHARE CAPITAL

Minimum share capital of Rs. 5,00,000 is required for incorporating a private limited company. For a private company, it was Rs. 1,00,000 earlier, but now there is no such minimum capital compulsion. There for no blockage of funds and you can start private limited company even in Rs. 10000/- or even lower amount (excluding professional charges for incorporation of company).

6. LESS LEGAL FORMALITIES

Compliance of legal formalities is very expensive and time-consuming, but in case of private limited company legal formalities are very less as compared to public limited company.

7. LOW DISCLOSER REQUIREMENT

In case of public limited companies there are various reports/ financials / results etc. which need to be disclosed to publicly at govt. portals like SEBI / BSE / NSE etc. but in case of private companies there is no such compulsion of public disclosures of financials etc.

8. FAST DECISION MAKING

Decision making process is more complex in public limited companies as more number of shareholders are involved. This complexity is not occurred in a private limited company as the numbers of shareholders are very less.

9. NO STOCK MARKET STRESS

As private companies are not listed in stock market, their shares are not traded in share market. So there in no pressure of investors in private limited companies and can focus on their business.

10. CONFIDENTIAL

Due to public disclosure of financials and other reports confidential information such as compensation, legal proceedings, Investments and other crucial information cannot be kept secrets from your competitors. Such information is more secure in a private limited company as there is no public disclosure.

11. IMPORTANCE TO LONG TERM PLANNING

In case of private limited as stated above that there is no any stock market pressure, so the management is not in stress to give short term earning to its investors rather can concentrate on long term planning to achieve long term goals.

12. BORROWING CAPACITY

A company can issue debentures, secured as well as unsecured and can also accept deposits from the public, etc. Even banking and financial institutions prefer to render large financial assistance to a company rather than partnership firms or proprietary concerns. So the borrowing capacity of a private limited is more than individual / partnership concerns.

13. OWNING PROPERTY

        A company being a separate legal entity, can acquire and own property in its own name. No shareholder can make any claim upon the property of company so long as the company is a going concern.

Main Documents required for incorporation of private limited company

• Share capital amount
• Brief about the business of company
• Address of registered office of the company and documents for that address like sale deed / rent agreement and utility bill like electricity bill / water bill (not older than 2 month)
• Identity proof and address proof of the Directors and Shareholders (PAN Card / Adhaar Card / Passport / Voter ID / Driving Licence etc.).
• Occupation details of directors as well as shareholders.
• Email address and Mobile no. of the directors / shareholders.
• Passport size photo of directors and shareholders.
• MoA and the AoA subscriber sheets.

What is the difference between limited company and private limited company?

1. Complexity: The Public Limited company has to follow stringent rules and requirements. But no such stringent rules or requirements are applicable for a private limited company.

2. Ownership in limited hands: Ownership in case of private limited company is in the hands of few peoples only as compared to public limited company.

3. Number of shareholders: In private limited company, the minimum number of members /shareholders should be two and the maximum 200. But in case of public limited the minimum number of shareholders is seven and there is no limit to the maximum number.

4. Trading on stock exchange: The shares of a private limited company are not tradable  on stock exchange but public limited company if listed can trade its share on stock exchange.

5. Transfer of shares: Shares can be easily transferred in a Public Limited Company whereas it is not possible in a Private Limited company. Private limited company cannot make a public offer of its shares. Public limited companies can make a public offer through advertisements.

6. Disclosure requirement: In case of public limited companies there are various reports/ financials / results etc. which need to be disclosed to publicly at govt. portals like SEBI / BSE / NSE etc. but in case of private companies there is no such compulsion of public disclosures of financials etc.

7. Share capital: Minimum share capital of Rs. 5,00,000 is required for incorporating a private limited company. For a private company, it was Rs. 1,00,000 earlier, but now there is no such minimum capital compulsion. There for no blockage of funds and you can start private limited company even in Rs. 10000/- or even lower amount (excluding professional charges for incorporation of company).

8. Requirement of Women Director:

There has been a change in law, according to which,  every listed public company and other public limited company which are not  listed  but having a

1. paid-up share capital of Rs. 100 crore or more

or

2. having a turnover of Rs. 300 crores or more

are required to appoint at least one woman Director. But there is no women Director requirement for a private limited company registration.

If any director contravenes the provisions of this section such director shall be punishable with fine which shall not be less than Rs.1,00,000/- but which may extend to Rs.5,00,000/-.

Who controls a private limited company?

Private limited company: Private limited companies are owned by individual people, trusts, associations and by other companies. The private limited company are of two types:

1. Private Limited company limited by shares:

As each shareholder owns at least one share in the company, so owners of a company limited by shares are known as ‘shareholders’.

2. Private Limited company limited by Guarantee:

The owners of a company limited by guarantee are known as ‘guarantors’ because they guarantee a sum of money to the company.

Public limited company: The collective term for limited company shareholders and guarantors is ‘members’, but the first members of a new limited company are also referred to as ‘subscribers’.