Advantages and disadvantages of Pvt Ltd Company
Introduction
Private Limited Company is a common business structure, and it is important to be aware of the advantages and disadvantages of a Private Limited Company. A Private Limited Company is a separate legal entity with multiple benefits like Limited Liability, Tax benefits, credibility, and the ability to raise funds.
What is a Private Limited Company?
A private limited company is a type of business owned by a small group of people called shareholders, and it is often chosen by small and medium-sized businesses. This structure is flexible, legally recognized, and helps protect shareholders from losing more than their investment. Private limited companies do not sell their shares on stock exchanges, and only a limited number of people can own shares, which cannot be easily transferred. To form a private limited company, there must be at least two shareholders and no more than 200.
Advantages of Pvt Ltd Company
Limited Liability protection
Protects the personal assets of the partner from business liabilities. In a private Limited Company, There is no risk to the personal assets as it provides protection to the members of partners.
Separate Legal Entity
A Private Limited Company is a separate legal entity means it can own a property, take decisions for it, sue, and can be sued on its own name. Assets and liabilities of both companies and directors are different.
Tax Benefits
A Pvt Ltd Company is eligible for several tax benefits, such as deductions for business expenses and lower tax rates. which is beneficial for an individual.
No minimal paid capital
After the changes of the companies act, 2013, Pvt Ltd Companies does not require a minimal paid up capital. It can be registered with a nominal authorized share capital.
Uninterrupted existence
A Private Limited Company has an uninterrupted existence, which means it has perpetual succession. Until the company is legally dissolved, it will maintain its existence. A Pvt Ltd Company is a separate legal entity, meaning the death of any member, founder, or director does not affect the existence of the company.
Foreign Direct Investment allowed
In a Private Limited Company, 100% Foreign Direct Investment is allowed. Simply, any foreign entity or individual is eligible to invest directly in a Pvt Ltd Company.
Credibility
Certain details are available on the MCA website which improves the company’s credibility. Also, it makes it easy to authenticate details.
We provide expert services to register pvt ltd company and Pvt ltd annual filing, simplifying the company closure process while ensuring compliance with all legal requirements.
Disadvantages of Pvt ltd Company
Compliance requirement
It is mandatory to fulfill the compliance requirements, such as annual filings, board meetings, audits, and financial statements. Failing may lead to penalties.
Great administrative burden
Private Limited Companies need to maintain certain things, such as financial records, List of directors, shareholders, and voting decisions. Company have to comply with all relevant laws. If the company is facing burden, then they need to appoint a Company Secretary to handle all the required tasks.
Number of members
In a Private Limited Company, The number of members is limited. It can only have 200 members. Meanwhile, A Public Limited Company can have unlimited members.
Restriction on transfer of shares
Private Limited Company is not allowed to issue its shares to the public. It is difficult for an individual to exit or join a Pvt Ltd Company.
Conclusion
Understanding the advantages and disadvantages of a Pvt Ltd Company is essential before making a decision. A Private Limited Company is an ideal business structure for those seeking limited liability and long term growth. Its advantages include taxation benefits and enhanced credibility. However, it also comes with certain drawbacks, such as legal compliance requirements and administrative burdens. For detailed insights, you may contact the experts.
Suggested Read :
Tax Structures for Pvt ltd Company
LLP Vs Private limited company
Checklist for Pvt Ltd Company Compliance
Director Appointment in Pvt Ltd Company
Monthly Compliance for Pvt Ltd Companies
FAQ
1. What is a Private Limited Company?
Private Limited Company is a business structure that is owned by a small group of people or members.
2. What are the minimum requirements to register a Pvt Ltd Company?
To register a Private Limited Company, there should be minimum two directors; One of the directors must be an Indian citizen, and Two shareholders.
3. What is the minimum turnover requirement for a Pvt Ltd Company?
There is no minimum turnover requirement for a Private Limited Company in India.
4. Can an individual person start a Private Limited Company?
No, There must be at least two members to start a Private Limited Company.
5. What is the limit of members in a Private Limited Company?
The number of members must be between 02-200.
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