The private limited company is the most preferred form of business structure. Private Limited Company is a form of privately held small business. This type of company can be formed with minimum two and maximum 50 members. One crucial thing to be noted about the private limited company is that the shares of the private limited company cannot be traded publicly.
Following are the various advantages of private limited company-
1. Perpetual Existence- As the legal identity of the private limited company is separate from its members the life of the company does get affected by the life of members. Thus the death or inability of the members does not end the life of the company.
2. Separate legal identity- The legal identity of the private limited company is separate from its members. Under the companies act 2013 the companies are recognized as the separate legal identity. Due to this feature, the private limited company is empowered to own property under its name. Further, the company can sue and also it can be sued under its own name due to this very same feature.
3. Simplicity in fundraising- Shareholders allowed are up to two hundred and another two hundred members are allowed, this many numbers and the reputation of the private limited company makes it easier to raise capital funds in comparison to other forms of companies. Therefore, we can say the scope of expansion is greater when a private limited company is incorporated. Taking debts from banks and other financial ventures are quite easy too.
4. Limited Liability- The liability of all the members of the private limited company is limited to their share only. This feature protects the personal assets and income of shareholders at times of any financial crisis faced by the company. Also, it gives the company more liberty of taking risks.
5. Tax Benefits- They pay tax on taxable profits and are exempted from higher personal income tax rates.
6. The number of members and shareholders- In order to incorporate a private limited only two shareholders and two members are required. This helps the aspiring entrepreneurs to easily set up their business.
7. Flexible Relations- In a private limited company a single person can act as a shareholder, a director and an employee at the same time. Further, they are considered reliable too.
8. Foreign direct investment- Private limited company is the sole business structure that permits 100% foreign direct investment. This implies that foreign companies can invest in the private limited company without a prior government approval.
9. Employee stock option- The private limited companies are empowered to issue ESOP to their employees. Issuing ESOP helps in motivating the employees to perform better.
Like every coin has two sides there are certain disadvantages also associated with the private limited company. However the advantages of private limited always manage to overpower the disadvantages associated with the private limited company.
