Private Limited Company

A private limited company is a company which is privately held for small businesses. The liability of the members of a Private Limited Company is limited to the amount of shares respectively held by them. Shares of Private Limited Company cannot be publically traded.

 A Pvt Ltd company which can have a minimum of two members and can go as far as to two hundred members have limited liability of its members but has many similar characteristics as of a Partnership firm. A Pvt Ltd Company must have a minimum

of two directors and a maximum of fifteen directors. A minimum of two shareholders is required for legal registration of a Pvt Ltd company. A total of two hundred shareholders are acceptable in any Private Limited Company but not more than that. The company lies somewhere between a partnership firm and a widely owned Public company. Private Limited Company provides certain benefits including stability however it has its own disadvantages too like selling of shares which must first be offered to the members of the company itself.

Advantages of a private limited company under Companies Act Section 2(68)

  1. Separate legal entity: Entity means anything which has a real existence. Under the Companies Act Section 2(68), a Company is a legal entity and a juristic person who is an artificial person. Overall the company has the legal capacity to own property and also incur debts. The members and the shareholders of the company are free from the liability to the creditors for such debts.
  2. Uninterrupted existence: A company hold ‘perpetual succession’ which means continuity or uninterrupted existence until it is dissolved legally. A company will not be affected by the death of the member or other departure of any member as it is a separate legal entity but its existence will continue no matter what changes in the membership.
  3. Limited Liability: Limited Liability means the status of being legally responsible only to a limited amount of debts of a company. To the extent of the face value of shares taken up by members, the liability of a company is limited. The liability of the members on a winding-up is limited to the amount unpaid on their shares, where a company is limited by shares.
  4. Free & Easy transferability of shares: shares are transferable by a shareholder to any other person. The transfer is easy in comparison with the transfer of an interest in a business run as a proprietary concern or a partnership. A share certificate is needed along with the filing and signing a share transfer form and handing over the buyer of the shares.
  5. Owning Property: A company can acquire property in its own name. Shareholders can not make any claim upon the property of the company so long as the company is a going concern. The shareholders are not the owners of the property of a company. The company itself is the true owner.
  6. Capacity to sue and be sued: To sue means to institute legal proceedings against or to bring a suit in a court of law. As a person, it 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 also be sued in its own name.
  7. Dual Relationship:  it is possible for a company to make a valid and effective contract with any of its members in the company form of organization. It is also possible for a person to be in control of a company and at the same time be in its employment. Therefore, a person can at the same time be a shareholder, creditor, director and also an employee of the company.
  8. Borrowing Capacity: A company can enjoy better avenues for the borrowing of funds. It can issue secured debentures as well as unsecured debentures and can also accept deposits from the public, etc. Render Large financial assistance is preferable by banking and financial institutions than partnership firms or proprietary concerns.