Basics of Private Limited Company
IntroductionIn India, starting a business under as Private Limited Company is one of the great forms of business. The Private Limited Company is an association of person who works for a common goal. It can have a minimum of two members and a maximum of 200 hundred members, whose liability is limited. Its shares don’t trade on public exchanges and are not issued through an initial public offering. The business holders hold all the shares of the Company privately. Companies Act has granted a number of privileges and exemptions to Private Limited Company.
a. Shareholders right to transfer shares is restricted, however, in case of rejection of registration of share transfer, appropriate reason needs to be stated;
b. Minimum no. of shareholders can be 2 and maximum 200;
c. Public issue of shares and debentures are not permitted;
d. A most suitable form of business for raising fund.
a. Limited Liability of Shareholders
In a Private Limited Company, the liability of its members is limited. The liability of the shareholders of a company is limited only to the extent of the face value of shares taken up by them. Therefore, where a company is limited by shares, the liability of the members on a winding-up is limited to the amount unpaid on their shares.
b. Minimum Capital Requirement
At the initial stage of enforcement of Company Act, 2013 and the rules made thereunder, there was a minimum paid-up share capital requirement in the Private Limited Company however, presently, there is no minimum capital requirement for the formation of Private Limited Company.
c. Business continuity
Private limited companies enjoy permanent succession because the company has own legal entity. A company, being a separate legal person, is unaffected by the death or other departure of any member but continues to be in existence irrespective of the changes in membership.
Private limited companies enjoy tax advantages in addition to limited liability. These companies pay corporation tax on their taxable profits and tend to be exempt from higher personal income tax rates.
e. Foreign Direct Investment
Public Company is eligible to receive Foreign Direct Investment in terms of RBI Guidelines and FEMA Provisions.