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Private Limited Companies

Private Limited Companies are Companies formed under the Companies act 2013 and are governed by the rules and regulations of the act. Private limited companies are distinguished from other form of Companies by the suffix of “Private Limited” or “ Pvt Ltd” at the end of the Company Name.

The main advantages of forming a Private Limited Company are that it offers the business a separate existence from the shareholders. i.e. the business is completely stood alone and all agreements and transactions are carried out in the name of Company itself. This form of business organization also offers the added advantage of Limited Liability and the liability of the shareholders is limited to the amount share allotment money paid by them.

Generally since shares of Companies are freely transferrable, potential investors prefer to invest in Companies.

Advantages over Limited Liability Partnership or Partnership business.

  • The Workings of and Company are Governed by the Companies act 2013 which gives safeguards to all stake holders.
  • Shares are freely transferable (unless the same is restricted at the option of the Promoters) hence all investors have the freedom to exit the business or sell their share at any time.

Advantages over Public Companies.

  • Public Companies are very tightly regulated by the Ministry of Corporate Affairs and the Workings of the Companies act 2013. E.g. Managerial Remuneration has certain restriction for a Public Company as opposed to a Private Limited Company.
  • If required Private Limited Company offers the option to impose restriction of sale of share, voting rights etc. while no such restriction are possible in Public Company.
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Disadvantages

  • Companies are tightly regulated than other forms of business organization are requiring considerably more compliance related efforts than other option(s). Eg. Companies have to file an audit under Companies act irrespective of income. Service tax has to be remitted monthly as opposed to quarterly for other type of Organization.
  • Membership of Private Companies are Limited to 200 and there is a restriction to offer shares to public or raise Capital from public. Which means the share of a Private Limited company cannot be Listed and if the same has to be listed the Private Limited (Company)has to be Converted into a Public Limited Company
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  • Name has to be reserved for the Company. The name should have some connection to the work to be carried out by the Company.
  • There should be a minimum of 2 directors and members for a private Company.
  • The minimum paid up capital is Rs 1 lac.
  • The Company should have an address to show as the registered office. And the same should be intimated to the authorities within one month.

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