There are fewer formalities in forming a private limited company, so its formation process is quite easy. It can start its business right after getting the ‘Certificate of Incorporation’ from the registrar.
- A limited number of members:
There is a requirement of a certain number of minimum members for starting a private company. The members of Private limited Company are restricted to minimum two and maximum 50-200 only. Also, there is a limit to the maximum number of members in a private company. However, it cannot have more than 200 members, this is the maximum limit.
Private companies require a certain amount of minimum capital for starting their business. The limit of paid-up capital for these companies is prescribed from time to time.
- Restriction of selling share:
Private Limited Company is not able to invite mass people for selling its shares and debentures to them. There is a strict restriction on the transferability of shares in these companies. This is prohibited by the Company act. Shareholders need to discuss & take consent of other shareholders for the transfer of shares.
This type of company is not required to publish a statement in lieu of prospectus or memorandum to the incorporation.
The private limited companies keep on continuing forever. Its life or continuity is not affected by the life of its members. Death, insolvency, or bankruptcy of any of its members does not affect the life of the business. The business enjoys perpetual succession.
The liability of each member or shareholders is limited. It means that if a company faces loss under any circumstances then its shareholders are liable to sell their own assets for payment. The personal, individual assets of the shareholders are not at risk.
These companies get facilities in not making a statutory statement, a financial statement by a certified accountant and making audit or conducting audit and inspection, etc.
The liability of members of Private Limited Company is limited to only the extent of the amount of the face value of the shares purchased by them. The shareholders’ liability is never the same as the partnership business.
Because of being smaller in size and having less legal formalities comparatively, the private limited company has disciplined management in between the organization. Usually, the shareholders themselves work as paid employees to such a company so the management system remains under the control of the company.
- A good relation among the shareholders:
As in such companies, there are fewer members and there is a limitation in transferring shares outside in public, a good relationship gradually develops among the shareholders. Usually, close people tend to establish a private limited company themselves.
After explaining the above features, we can say that private limited companies absorbed an artificial personality, its own logo, and familiar by its own name.
Created & Posted by Aashima
Accountant at TAXAJ