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Merits and Demerits of a Private Limited Company

Limited Company

Starting a business means fulfilment of dream. The business was an outcome of our planning and passion. However, we may be confused about the type of business entity to start our business. Read our blog about how to choose business entity type. In this article I am trying detail about the merits and demerits of a Private Limited Company

Private Limited Company:

A business entity type which is formed under the Companies Act 2013, which provides limited liability to its owners, more credibility and perpetual succession. It should have minimum 2 Directors and 2 Shareholders. It should have at least one resident Director

Advantages of Private Limited Company

  1. The liability of the Share Holders are limited to the extent of their unpaid value of Shares. Hence the risk of losing personal assets against companies’ liabilities and debts are very minimal.
  2. The Private Limited Company is considered as a separate legal entity, which is different from its owners. It can sue and be sued in its own name. it is considered as a separate person
  3. 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
  4. A limited company has a perpetual succession. It is created by law and only law can windup it. The death and disability or transfer of ownership etc, will not affect the existence of a Private Limited Company.
  5. We can add up to 200 members. So, It is easy to fetch funding in the case of a private limited company by issuing shares. The Bank Loans are also easy to get
  6. The Directors can give Loan to a Private Limited Company
  7. Private Limited Company offers more credibility and this type of business entity is well known among public

Disadvantages of a Private Limited Company:

  1. In a private limited company, the number of members in any case cannot exceed 200.
  2. In stock exchange shares cannot be quoted.
  3. Mandatory Audit and annual filing requirements to government
  4. Higher penalty for default in filing of some eforms
  5. Mandatory requirements like holding of minimum 4 Board Meetings in a year, Annual General Meeting etc

Author

Gayatri Dhote

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