Advantages of Private Limited Company
- No Minimum Capital
No minimum capital is required to form a Private Limited Company. A Private Limited Company can be registered with a mere sum of Rs. 10,000 as total Authorized Share capital.
- Separate Legal Entity
A Private Limited Company is a separate legal identity in the court of the law, meaning assets and liabilities of the business are not the same as the assets and liabilities of the Directors. Both are counted as different. A Private Limited Company separates Management and Ownership and thus, managers are responsible for the company’s success and are also answerable for the company’s loss.
- Limited Liability
If the company undergoes financial distress because of whatsoever reasons, the personal assets of members will not be used to pay the debts of the Company as the liability of the person is limited.
For e.g. If a Private Limited Company takes any loan and is unable to pay off, the members are responsible to pay only that much how much they own towards their own shareholding i.e. the unpaid share value. Which means, if you have no balance payable towards the amount of shares you hold, you are not payable towards any debt payable by the company even if the debt/credit amount remains unpaid.
- Fund Raising
A Private Limited Company in India is the only form of business except Public Limited Companies that can raise funds from the Venture Capitalists or Angel investors.
- Free & Easy transfer of shares
Shares of a company limited by shares are transferable by a shareholder at any other person. The transfer is easy as compared to the transfer of an interest in a business run as a proprietary concern or a partnership. Filing and signing a share transfer form and handing over the buyer of the shares along with share certificate can easily transfer shares.
- Uninterrupted existence
A Private Limited Company has ‘Perpetual Succession’, that is continued or uninterrupted existence until it is legally dissolved. A company, being a separate legal person, is unaffected by the death or other departure of any member but continues to be in existence irrespective of the changes in membership. ‘Perpetual Succession’ is one of the most important characteristics of a company.
- FDI Allowed
In Private Limited Company, 100% Foreign Direct Investment is allowed that means any foreign entity or foreign person can directly invest in a Private Limited Company.
- Builds Credibility
The particulars of the company are available on a public database. Which improves the credibility of the company as it makes it easy to authenticate the details.
Disadvantages of Private Limited Company
- One of the main disadvantages of a Private Limited Company is that it restricts the transfer ability of shares by its articles.
- In a Private Limited Company the number of shareholders in any case cannot exceed 50.
- Another disadvantage of Private Limited Company is that it cannot issue prospectus to public.
- In stock exchange shares cannot be quoted.
