Table Of Content
- What is the Eligibility of forming a Private Limited Company?
- What are the Advantages and Disadvantages of a Private Limited Company?
- What are the Characteristics of a Private Limited Organization?
- Frequently Asked Questions
A Private Limited firm is a business owned by individual investors who have pooled their cash to form the firm. There are less opportunities for liability in a Private Limited Company, thus the shareholders bear the risk. They take pleasure in the dividends that the business receives from its profits. Among enterprises, the Private Limited is the most commonly used Legal abbreviation.
Private limited companies are not classified by any particular industry or size. The Legal abbreviation Private Limited can be used by any profession to its advantage. For instance, a physician, a store, a real estate firm, etc. A Private Limited Company is described as follows in Section 2(68) of the Companies Act, 2013:
- A business with a minimum amount of fully paid shares.
- Through its articles of association, it limits the ability to transfer shares (AOA).
- It restricts its membership to 200 people.
- It forbids making a public invitation to subscribe for its securities available.
What is the Eligibility of forming a Private Limited Company?
In the eligibility criteria the key thing that the Directors have to keep in mind is that from both of the directors anyone should have to be the resident of India. The policy is made compulsory. No foreign person can open a Private Limited Company on their own in India, the registration of that won’t take place since no Indian director is involved.
What are the Advantages and Disadvantages of a Private Limited Company?
Private Limited Company advantages and disadvantages are as follows:
Advantages of Pvt Ltd Company
- Separate Legal Entity- A private limited business is distinct from its members Legally. If a business is recognized by the law as a distinct Legal entity, it has its own assets and liabilities. It may file lawsuits in its own name, or the name of the corporation. Ownership and management are distinct entities. As a result, the management bears accountability for the Company’s loss.
- Liability is limited- The Private Limited Company’s members’ liability is restricted. It implies that members’ personal assets won’t be utilized to settle business debts in the event of a loss for the corporation. Members’ liability for debt repayment is limited to the amount they possess as a percentage of their shareholding, or the unpaid share value.
- Perpetual Existence- A perpetual succession is a feature of a private limited corporation that allows it to continue operating until it is formally disbanded. The Company’s existence is unaffected by the passing of its founders, directors, or members because it is a distinct Legal entity. It carries on with its operations notwithstanding the shifts in membership.
- Foreign Direct Investment (FDI)- 100% Foreign Direct Investment (FDI) is permitted in private limited companies in India, meaning that any foreign individual or organization may make direct investments in the business. FDI will support the Company’s national and even international expansion.
Disadvantages of Pvt Ltd Company
- Numbers of Members- There is a restriction on the number of members in a Private Limited Company. Maximum 200 members can be there whereas in a Public Limited Company there is no limit on the members.
- Transfer of Shares- It is not easy to transfer the shares under AOA and also these shares are not listed in the Stock holding.
- Prospectus cannot be issued-It is not permitted for a private limited business to publish a prospectus asking people to subscribe for its shares. The Company’s shares aren’t allowed to be listed on stock markets.
So these are some of the major Private Limited Companies advantages and disadvantages. When opting to form a Private Limited Company, an entrepreneur needs to weigh the pros and downsides.
What are the Characteristics of a Private Limited Organization?
The characteristics of a Private Limited Organization are as follows:
- Limited Liability: A Private Limited Company’s shareholders’ or members’ liability is restricted. It implies that the Company’s stockholders won’t have to liquidate their personal belongings to cover a loss the Company incurs under any circumstances. Only the amount of shares subscribed or the guaranteed amount they have agreed to pay will be repaid by them.
- Companies Name: “Private limited” must appear after the Company name of a private limited firm. For instance, if the business is called ABC, it must list itself as “ABC Pvt. Ltd.” on the Company Registration form and in all official correspondence.
- Prospectus of a Company: A prospectus is a comprehensive report that details the current state of the business. A business offers a prospectus to the general public so they can purchase Company shares. A private limited business, however, is not permitted to invite the public to subscribe for its shares, hence it is unable to publish a prospectus.
- Directors: 2 directors should be there else maximum 15 members can be included in the Pvt Limited.
Because it is easier to raise funding for a Private Limited Company in India, many startups choose this type of business structure. Given the instability of start-ups, private limited corporations have the benefit of being quickly sold or transferred if the owner so chooses. Such a corporation is ideal for a startup because it has the highest level of client reputation among all corporate organizations. Now Company Registration through eDrafter.in is way much easier. Everything will be served on a platter for you!
Frequently Asked Questions (FAQs)
A Company can raise capital more easily than a partnership or single proprietorship. Venture capitalists and angel investors only make investments in public or private limited firms.The required capital can be raised by a Private Limited Company through equity, loans, and deposits. It can raise money by issuing a range of financial instruments, through its directors, backers, or family members, banks or other financial institutions, or by any of these methods.
In Private Limited Company there is no such term as turnover if we want to start it. A minimum capital of 1 lakh should be invested to start and register a Pvt Ltd Company in India.