In this article, we look at private limited company advantages and disadvantages to explain what they offer business owners compared to operating as a sole trader. Members cannot be artificial legal entities. In a 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. Registration of a Pvt Ltd company in India is complete an online process. It can be used for taking the name approval of the proposed Company and also for filing Company Registration in one go.2. To empower entrepreneurs who wish to start and operate a business by themselves, the Government introduced the concept of One Person Company. Limited liability. It is not possible to issue a prospectus to the public. Part A: Apply for the Name Reservation of the company in Part A of the form Spice+. Hi team I have a doubt in the advantages of private company I can see the shares are transferable but why in the disadvantages it is mentioned the shares cannot be transfered. She has been instrumental in creating wonderful contents at Ebizfiling.com ! Introduction In any company, the Director is the head of the company. the unpaid share value. There is great flexibility in the management of affairs and the conduct of business. You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources. Although you will also pay personal income tax and National Insurance contributions as a director or owner of a limited company, you have greater flexibility in the way you pay yourself, which can lead to savings on your personal tax bill. A Private Limited Company can be registered with a mere sum of Rs. This implies that the investors' assets will be safeguarded if the firm liquidates. Company finances are very much separate from personal assets. - Alternative small business funding. The number of shareholders must not exceed the regulation. In addition to that, an LLC is comparatively easy to manage and some tax incentives are available to LLCs in some countries. A Private Limited Company separates Management and Ownership and thus, managers are responsible for the companys success and are also answerable for the companys loss. A minimum of one director should be an Indian citizen residing in India. In a private limited company, the transfer of shares is not allowed under its AOA, and these shares cannot be listed on the stock exchanges. The online process for private limited company registration in India has made it easier than ever to benefit from limited liability protection and funding. These Advantages and Disadvantages of Private Limited Company are worth considering before executing the plan. Partnership and Private Limited Company have a number of advantages and disadvantages for each of the business types. Related: How to pay Corporation Tax: A guide to rates & deadlines. The members of a private limited company are limited. Account balances and details about the companys directors, including their names and contact information, must be made available upon request. Limited liability: In the private company, the liability of each shareholder or member becomes limited. Thus, the directors need to obtain the DSC before applying for registration. The fee for incorporation of an LLP firm is very nominal as compared to that for Private Limited Company. Sole traders, in contrast, only have to register with HMRC for income tax purposes. I have changed the example to Ikea, which is a private limited company. 1. In addition, the company's debt is not their obligation as a person. The company name must adhere to the provisions of the Companies Act, 2013 for it to be approved by the Registrar of Companies (ROC). Also, if you wish to avail of the benefits of the public issue, the company has to be incorporated as a public limited company. 10,000 as total Authorized Share capital. Private limited companies enjoy tax advantages in addition to limited liability. A private company does not have to offer up detailed information on how its faring for public and government scrutiny, as do public companies under the regulations of the Securities and Exchange Commission. Following are some of the common advantages: One of the best benefits of a limited company is that its a separate entity allowing the owner to keep personal possessions separate from the business. If one shareholder has more than 25 percent of the shares, they are treated in company law as persons of significant interest because they can influence decisions made about the business. This limitation is counted among the common disadvantages of a private limited company. A Ltd. business has general advantages that set them apart from unlimited enterprise. Reduced risk of personal liability As a sole trader, you are personally liable for all the debts and liabilities of your business. Following are the Advantages of Private Limited Company in details. Perpetual Succession is one of the most important characteristics of a company. Main advantages of private limited companies Main disadvantages of private limited companies Limitations that a Private Limited Company suffers from PESTEL analysis of Private Limited Companies Political Factors affecting PLCs Economical Factors affecting PLCs Social Factors affecting PLCs Technological Factors affecting PLCs Private Limited Company is the simplest and a very popular form of Business Registration in India. Shares of a company limited by shares are transferable by a shareholder to any other person. Limited Liability The greatest benefit of private limited companies is limited liability. See more: Setting up a Private Limited Company in Singapore (Singapore Pte Ltd) Sole traders have to make their own provision by joining a personal pension scheme and making regular payments. If youre thinking of starting or expanding a small business, you have a choice of structures sole trader, public limited company, business partnership, or private limited company. In a private limited company the number of members in any case cannot exceed 200. High taxes, smaller dividends, and complex set-ups often deter small- and medium-sized business owners from setting up private limited companies. Disclaimer: The materials provided herein are solely for information purposes. You can also get a free accounting quote here. Apply for company name reservation in Part-A of the SPICe+ form with two proposed names. for a free consultation, get in touch with our team on, Advantages and disadvantages of Private Limited Company. For example, if an owner wishes to retire, the business could be sold or simply passed on. What are the Advantages of Private Limited Companies? end incorporation, compliance, advisory, and management consultancy services to clients in India and abroad in all the best possible ways. For further guidance on setting up a limited company, contact us for help. Recentlythe MCA has replaced the earlier SPICe form with a new web form called SPICe+ (SPICe Plus). The fact that both Company forms support limited liability adds to the ambiguity. This means any decision that has to be made by the number of votes from owners. If you decide to go ahead and set up a plc, we can help you through the process. Call us today or get an instant quote for our services! When more resources or large-scale production is necessary, forming a private limited company protects the interests of lenders. Reach out to us now. So, some disadvantages of a private limited company are; Many private limited companies, or Private Limited Companys, are very profitable. This improves the companys credibility since it makes it easy for investors, financial institutions and clients to easily authenticate company details before associating with it. Set up and run a successful business with ease! Registration Process Private limited company registration on average takes about 10 - 20 days and costs Rs.13000 (all inclusive) through STARTUPEDGE . Limited companies must also submit an annual . . KIndly cite the relevant Sections under which you advise the same.. In the Private Limited Company there would Limited Liability for members. On the contrary, private companies are not subjected to any such obligation as they can operate privately and are liable to pay taxes only. A Private Limited Company can be registered with a mere sum of Rs. Forming private limited companies results in the protection of personal assets, access to more resources, financial assistance, and greater tax cuts. It can attract large numbers of customers and investors. Disadvantages of Private Limited Company 1) Number of Shareholders and Members If you have registered your business as private limited company, the number of shareholders cannot exceed the limit of 50 as per the law. In simple terms, a HK company is only required to pay tax on profits derived from its Hong Kong operations. Business organizations have limited liability. Private company is a closely-held entity A private company is held closely as the shares can be sold or transferred to other people as per the owner's decision. As we mentioned earlier, private limited companies have access to a wider range of funds for growth, including bank loans, venture capital and crowdfunding because investors see limited companies as a lower risk. With our company formation packages, your company incorporation can be completed as quick as 24 working hours . Disadvantages of an LLP. For Indian Entrepreneur. This may be due to a direct role and intervention of the government or public either through investment or management. One of the most famous business structures in the UK, a private limited company is limited by shares. Plenty of thoughts go around the mind of businesspersons while setting up a Private Limited Company. The 'limited' part of 'private limited company' is an important advantage when running a business as a limited company. A private limited company is owned by its shareholders, the people who hold shares in the business. The other Director(s) can be a Foreign National. Private limited companies have to maintain three types of legally required records: Records of company activities, such as lists of directors, shareholders and voting decisions. However, the maximum number of members is 200. Private Limited Companys can also be quite complex, meaning that lawyers and accountants almost always need to be involved in the Private Limited Company from the start, which can be costly. Private limited company advantages and disadvantages, Everything you need to know about Creditors and Debtors, What is EIS? A limited company also makes it easier to keep money within the firm for future use. IS there any special permissions needed from the TEhsildar/Collector /Mantralaya for getting TAX free towards Agricultural business ? One should carefully choose among the two. Since the company is a separate legal person, the death of the founders, directors or members does not affect its existence. Hence, its important to register a company only when the promoters are serious about using the company to operate a business. Before setting up a company, it is essential to find out its pros and cons to be ready beforehand. The procedure for winding up a company can be complicated, time-consuming, and costly when compared to an unregistered partnership firm. of shareholders greater than two we would use either '>2 . Private limited companies enjoy permanent succession because the company is its legal entity. Conclusion. A private company is owned entirely by a relatively small group of individuals or other entities providing capital. Another advantage is an increased public awareness of the company because IPOs often generate publicity by making their products known to a new group of potential customers. Shareholders in a Private Limited Company are not able to sell or transfer their shares to the general public. This means, if you have no balance payable towards the number of shares you hold, you are not payable towards any debt payable by the company even if the debt/credit amount remains unpaid. He also helps the accounting teams strive to improve what we do for clients, whether processes or services. We have discussed the advantages and disadvantages of a private limited company. Related: What is EIS? What are PROS and CONS of forming PVT LTD company for purpose of Agricultural production? Shares can not be quotes. Profits are only shared between shareholders. Advantages of a private limited company Private limited companies offer a number of important advantages compared to businesses operating as sole traders. Part A:Apply for the Name Reservation of the company in Part A of the form Spice+. This means that they are not subject to their personal liability. Cant find what you are looking for? Hello there!!! It's harder to get financing and business credit. Quite often these shareholders are supportive family members. In a private limited company, you and any other shareholders are only liable for debts up to the value of your shares. In this way, your business can easily be found online. Which of above is TAX free? Now its up to you to decide whether a limited company suits your circumstances and needs or not. In case if your business faces any loss or difficulty, the personal assets of shareholders will be protected against it. The Shareholders can be natural persons or artificial legal entities. The shares of a private limited company are not available to the general public to buy and sell on a recognised stock exchange. Its more flexible in terms of operations because a few owners are involved. Fast incorporation process Setting up a private limited company is easy and only takes a few hours. Advantages of running a private limited company Notable advantages of trading as a private limited company include: Individuals running private liability companies From an individual to a huge organisation, anyone can register as a private limited company. A Private Limited Company can be very expensive to create, as it must pay not only taxes and employee insurance but also any legal fees or other incidentals involved in the business. 2.1 Initial setup. Advantages of Private Limited Company No Minimum Capital No minimum capital is required to form a Private Limited Company. You need to record transactions on a monthly basis and sometimes you need to record transactions on a daily basis. Your email address will not be published. She studied Law and after practicing as an Advocate for quite some time, her interest towards writing drew her to choose a different career path and start working as a Content Writer. Anyone wishing to register a name must check that it is available. - alternative funding options for small businesses, Related: What is SEIS? The financial statements and incorporation details of a private limited company are available on the MCA website. Fulfilling legal formalities can be both time-consuming and costly, especially when planning a public limited company. The business owners hold all shares of the company privately. company name. Advantages Private limited companies are owned by one or more shareholders. Some of these may prompt you to steer an entirely new course for your business's future. Here are some of the main disadvantages of a private limited company: Limited access to capital: Unlike public limited companies, private limited companies cannot offer shares to the general public, making raising large amounts of capital more difficult. You want to transfer the ownership of the business by selling your shares. APrivate Limited Company is formed lawfully with Limited Liability or Legal Protection for its shareholders but that places restrictions on its ownership. Thus, the managers are responsible and answerable for the companys loss. A private limited company is a type of business structure that can be used for various businesses, from small family-run operations to large multinationals.. . Minimum Requirement for Private Limited Company, Private Limited Company Registration Process, Disadvantages of a Private Limited Company, Advantages of Incorporating a business in Indiana, Procedure to file ESI Nil Return on ESIC Portal, The 8-Digit HSN Code is the Key to Understanding GST Rates, advantages of Incorporating a company in Indiana, benefits of forming an LLC or a corporation in Indiana, Different types of FCRA registration in India, All you need to know about the remove a Director from a company, Necessity / Importance of Trademark registration in India, All about Partner and Designated partner in LLP, One of the Directors of a Private Limited Company has to be an. Shareholders and employees act as agents of the company, and therefore, do not affect the company if they leave. Moreover, if you set up a Limited company, you can reduce your Income Tax and National Insurance Contributions (NIC) by taking a combination of a salary and dividends. A partnership consists of two or more individuals who own a business together and share all its profits and losses, as well as the right to manage and make decisions on behalf of the business. The shares of the company cannot be listed on the stock exchanges. . Looking to file ITR? The owners are only responsible for the amount they have invested in the business if it goes bankrupt. Part B: In Part B of the Form Spice+, apply for the following services: No minimum capital is required to form a Private Limited Company. A private limited company has a legal entity separate from its members. Our experts suggest the best funds and you can get high returns by investing directly or through SIP. Some advantages of a private limited company the owners have limited liability it gives individuals the opportunity to be their own boss any new shareholders need to be invited, which. Following are the Advantages of Private Limited Company in details. Below are the specific advantages of an LLC: 1. You must register your business with Companies House, which is not expensive, but only after selecting and registering a business name, appointing directors, nominating shareholders and preparing legally required documents, including Memorandum of Association and Articles of Association. First, its essential to answer the question, what is a private limited company?. Subsequently, this. When customers place orders or award contracts, they want to be confident that the supplier has the resources to provide a reliable service.