Advantages & Disadvantages Of Private Limited Company

advantages & disadvantages of Private limited company

A private limited company registration is the most popular form of business for startups, it has many advantages but the most important feature of this company is that it is regulated under the company act, 2013 by the Ministry of corporate affairs. The company has to provide all the details about the company as well as if the company made any changes in the company the same has to be intimated to the ROC whether the changes in the director or business activity of the company. To start a private limited company minimum of 2 people are required as a director and shareholder, both shareholder and director can be the same person as well as a different person. In a private limited maximum, 15 people can be the director and a maximum of 200 people can be the shareholder, whereas in a public limited company or limited liability partnership there is no limit in the maximum number of shareholders or partners. Once it is registered it is valid for a lifetime means it cannot get closed until an application for closure of the company is filed to the registrar. After its registration, there are certain compliances which the company has to do regularly like auditor appointment, director’s KYC, income tax return filing, ROC filing related annual compliance, etc. to avoid penalties.

Advantages Of Private Limited Company

  • Minimum 2 people are required to start the company registration process
  • No minimum capital is required to start the private limited company
  • The company has a separate legal entity
  • The company can hold, rent, buy, sell, dispose of the property in its name. The property can be movable property as well as immovable property including trademark, patent, copyright, etc.
  • The liability of the directors and shareholders are limited 
  • The death of the director and shareholder doesn’t affect the validity of the company because the company has the feature of perpetual succession. 
  • Easy to get funds from the bank or financial institution in comparison to sole proprietorship and partnership. 
  • There is no public involvement or interest therefore the company doesn’t need to disclose its financials and other documents to the general public.
  • The compliances are less than the public limited company as there is no public involvement, therefore no need to comply with regulations of the following authority:
  1. SEBI 
  2. Stock Exchange
  3. RBI, if the company is not a banking company, etc.

Disadvantages of Private Limited Company

  • Restriction on transfer of shares to the general public, whereas the shareholder, can transfer their share to any other person but before the transfer, the shareholder has to take prior consent of existing shareholder and director.
  • The maximum 200 people can be the shareholder in the company.
  • The company has to do compliances every year whether the company has any income or not, the company has to file returns every year even if the company has no turnover.
  • If the company fails to do compliances or file returns then the company, as well as the director, has to pay penalties as per levy.
  • Flat 25% of the tax rate applicable on the company whether the company has a profit of Rs. 10000/- or Rs. 10 lakhs.
  • It is easy to register a private limited company but to close the company there are certain procedures and compliance which the company has to follow before closing the private limited company.

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