A Private Limited Company as defined under section 2 (28) of the Companies Ordinance Act of 1984, which states:
- The number of maximum shareholders is 50 with a minimum of 2 shareholders and directors.
- Prohibits the initial public offering for making any pledge for the companies’ shares.
- It restricts the right of transfer of shares to any person if any.
The Private Limited Company Registration is easy and has been simplified by the Ministry of Corporate Affairs and is now plausible to get registered by the approval of the registrar within 1 working day. The different formalities for registering a new company can be processed at Registrar of Companies (RoC) i.e. at the Registrar’s Office and all licenses can be obtained which are necessary for launching a pvt limited company. The limited company registration is on the rise after the Startup India program where several young age entrepreneurs have started new ventures by setting up a private limited company.
Advantages of a Private Limited Company
- Limited Liability: This protects the assets of the shareholders in case if the company has to be shut due to a financial crisis, or if in case there is any fraud, the owner will always possess the right to protect his/her assets/share capital.
- Attract Funding: It syndicates both equity and debt funds to have an optimal capital structure, and attracts funding from different sources like venture capitalists, crowd funding etc.
- Building the TEAM: By offering stocks and ownership to the employee’s talents can be retained. This process is on a rise where stock offering helps to retain talents.
- Credibility Improvement: As it is registered as a corporate entity the credibility is improved, and it increases trustworthiness in the market.
- Restriction on transfer of Shares: It is an advantage to other partners, as the shareholders who may wish to sell their shares to outsiders cannot do so. By the companies Act of 1984, it prevents them to do so.
- Existence Continues: Even after the death and exit of any shareholder, the firm continues and its existence is safe.
- Tax Breaks: Limited Company Registration enjoys tax benefits, as the tax structure may be slightly lower than other corporate taxes for multiple entities. This adds an addition benefit to private limited companies.
- Foreign Direct Investment (FDI): It allows for direct foreign deposits/investments through an easy channel.
Disadvantages of a Private Limited Company
- Registration Process: The registration process may be hectic if rules and regulations of the MCA are not clear. One may read the guidelines for the incorporation of a private limited company. The limited company registration can also be done with the help of online agencies like Business Ventures India, helping entrepreneurs for a pvt limited company registration. It generally takes 10-15 days for the complete incorporation process which includes, generation of DSC, DIN, Certificate of Incorporation, Company PAN, AoA, MoA, bank account etc.
- Filing Taxes Every Year: It is very important to file the accounts at Companies House every fiscal year, which will be on a public record. A Chattered Account generally takes care of this, to file the taxes for your private limited company.
- Can not be Listed: In stock exchange shares cannot be quoted, i.e., the listing of the companies for the initial public offering is not possible.
- Ownership Division: A major disadvantage of a private limited company is that it requires a minimum of 2 directors & shareholders for its incorporation, which leads to the division of shares.
- Limited Shareholders: In a pvt limited company the number of shareholders or members cannot exceed more than 50.
Thus these are some of the advantages and disadvantages of a private limited company in India.