Private Limited Company
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Private Limited Company
Nowadays incorporating a Private limited company is a very popular way to commence a business. It is very simple to form a Private Limited Company! Let’s understand what Private Limited Company is, its features and benefits of forming it.
What is Private Limited Company?
- A Private Limited Company is a form of business enterprise which is privately held by small group of people. The capital is invested in the form of “shares” and person holding shares is called as member. A private limited company is governed by Companies Act, 2013. Minimum two members are required to start a private limited company while the ceiling limit on maximum number of members is two hundred. There must be minimum two directors and maximum 15 directors for a private limited company.
- The key feature of Private Limited Company is that liability of members of a private limited company is limited to the number of shares held by them. If a private limited company faces financial risk, its shareholders are not liable to sell their personal assets i.e. they have limited liability. Their personal assets are not at risk in case of liquidation of company.
- There are certain restrictions on transfer of shares in case of Private limited company. Shares of Private Limited Company are not publicly traded. Private Limited Company cannot accept deposit from public at large.
What are the features of Private Limited Company?
- Separate Legal Existence: Private Limited Company is a separate legal entity. The existence of Private Limited Company is not affected by death, insolvency or bankruptcy of any of its members. The life of Private Limited Company is perpetual.
- Limited Liability of Members (Shareholders): The liability of members of Private Limited Company is limited to extent of nominal value of shares held by them. The limited liability feature is one of the biggest advantages of forming Private Limited Company. While a shareholder can participate wholly in the growth of a company, his or her liability is restricted to the amount of the investment in the company, even if company subsequently goes bankrupt and has remaining debt obligations.
- No Minimum Capital Requirement: There is no condition of minimum share capital to register a Private Limited Company. It can be started with any amount.
- Minimum and Maximum Number of Members: There should be at least two members to set-up a Private Limited Company. The restriction on maximum number of members is two hundred. If the number of members cross two hundreds, it seizes to be Private Limited Company.
- No deposits from Public: Private Limited Company is not allowed to accept to deposit or loan from persons other than its members, directors or their relatives.
- Name: The Private Limited Company is required to add words “Private Limited Company” at the end of its name.
Why Private Limited Company?
- Perfect option for external Funding: The Private Limited Company offers various funding options in form of private equity, ESOP and more. This makes it more convenient for external funding options. Therefore Venture Capitalists, Angel Investors, and other outside funding agencies prefer Private Limited Company for their investment compared to any other business forms.
- Tax Saver: The Private Limited Company is taxed at the rate of 25% if the turnover of Private Limited Company during the financial year 2018-19 does not exceed 400 crores whereas highest tax slab for individual is 30% ( in case income exceeds Rs 10 Lakhs).
- Limited Liability of Members: The main advantage of forming a Private Limited Company is that Liability of members is limited which means assets attributed to the members cannot be seized in an effort to repay debt obligations attributed to the company.
- Perpetual Existence: The existence of Private Limited Company remains unaffected by death, insolvency or bankruptcy of its members. It lasts forever unless and until it is dissolved.
- Branding: The Private Limited Company is conceived as Corporate which gives it an edge over other traditional forms of organizations like Proprietorship, Partnership etc. Even banking and financial institutions prefer to render large financial assistance to a company rather than partnership firms or proprietary concerns.
- Benefit of Start-up India Scheme: The Private Limited Company is eligible to take benefit of registration under Startup India Scheme of Government of India. This scheme has various benefits including tax exemptions for the recognized startups.
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