Introduction 

The Private Limited Company offers a lot of advantages, from limited liability protection to easy transfer of shares. However, the feature of limited liability protection restricts the members to offer shares in an open market. So in this blog we discuss the meaning of Private Limited Company as well as its advantages and disadvantages.

 What is a Private Limited Company? 

A privately held company for small businesses is called a Private Limited Company. Members of a Private Limited Company are only responsible for the number of shares they own. The shares of the Private Limited Company cannot be traded in an open market.

 Minimum requirement for Private Limited Company  

  • A minimum of 2 directors is required, who are adults.

  • A Private Limited Company must have at least one director who is an Indian citizen and other directors can be foreign nationals.

  • The shareholders can either be natural person or artificial legal entities.

  • A minimum of 2 shareholders are required for a Private Limited Company.

 Advantages of Private Limited Company 

No minimum capital: No minimum capital required to incorporate a Private Limited Company in India. For e.g. a Private Limited Company can be registered with amount of Rs. 10,000 as total authorized share capital.

Separate legal entity: A Company is a separate legal entity in the court of law, meaning the assets and liabilities of the company are not similar to the assets and liabilities of the directors. Both are counted as different.

Limited liability: If the company undergoes financial distress for any reasons, the company is responsible for paying all the debts and legal expenses incurred in the company and not the owner. For e.g. If a Private Limited company in India takes a loan and is unable to pay it off, the members are liable for paying only the amount they own towards their own shareholding, i.e. the unpaid share value. That means, if you have no balance due towards the amount of shares you hold, you are not accountable to pay any debt of the company.

Transferability of shares: A Private Limited company is limited by shares. This enables the company’s promoters or shareholders to sell their shares to someone else who is eager to invest more money in the company and is interested in buying them. Compared to other types of debt, it is an easy solution to satisfy the financial demands of the company.

Uninterrupted existence: A Private Limited company has ‘perpetual succession’, that is continued or uninterrupted existence until it is legally dissolved. Because of its existence as a separate legal entity, a company is unaffected by the death or termination of any member and it continues to operate as usual despite of change in membership.  Perpetual succession is one of the most essential features of a company.

 Disadvantages of Private Limited Company 

  • One of the main disadvantages of a Private Limited Company is that the share transfer process is a lengthy one and it consumes lots of time.

  • In any case, a Private Limited Company cannot have more than 200 shareholders.

  • A prospectus including shares to be issued, share price etc cannot be issued by a Private Limited company.

  • The shares/ stocks of a Private Limited Company cannot be offered in open market like Public Limited Company.

 Conclusion 

We can conclude by saying that the Private Limited Company in India is a common form of business with a lot of advantages, including perpetual succession, limited liability, transfer of shares etc. But this does not mean that the Private Limited Company can be incorporated easily as the company cannot issue prospectus including number of shares to be issued, share price etc like Public Limited Company in India. As there are two sides to coins, a Private Limited Company has both advantages and disadvantages.