Advantages and Disadvantages of Private Limited Company

PUBLISHED : 13-10-2016 00:00:00

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 make it the most recommended type of business entity for millions of small and medium-sized businesses that are family owned or professionally managed.

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?

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.
Pvt. 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.