If you are just starting out as a company, you would prefer to have a safety net when it comes to liability. You would also want some flexibility so that your company could grow. In such cases, private limited company is the form of business entity that has become popular among most start-up owners. Why this company is preferred is because of three main reasons:
- It is flexible.
- It also enjoys the limited Liability, which basically means that in events of loss, the owners of the company won’t have to shell out there personal assets.
- The company and the owners are separate entities
Criteria of Company to Be a Private Limited Company
For a business entity to be registered as a private limited company, it should follow through on the following criteria:
- It should have a minimum of two directors and two shareholders.
- There is no initial capital requirement to start a company like this.
Salient Features of a Private Limited Company
- Naming convention: When it comes to naming such a business entity, it is necessary for you to suffix it with Private Limited Company.
- Members of the company: The Company should have a minimum of two members (shareholders). The maximum amount of members allowed for such a business entity is about 200.
- Number of directors Allowed: The Pvt Ltd Company should have at least 2 directors that can increase to 15 directors at the maximum. However, using a special provision, the amount of directors can increase even further to an unspecified amount.
- The unison between members and directors: Directors and members of the company can be considered the same person up until the number of directors is 15. Anything beyond that and the rest of members are just members, not directors.
- There is no need to keep an index of members: One of the perks of a private limited company is that there is no need to keep an index of the members of the company. There is no need to have a public record of it and therefore, a private Limited business entity enjoys a level of privacy.
- Perpetual succession: It means that as company’s identity is separate from its members, it can exist even after the death of the company’s members, the insolvency of their assets or bankruptcy. Whatever the case might be, the company will continue to exist.
- No need for prospectus: There is no need for a private limited company to generate a prospectus detailing its inner workings.
- Outside funds are not acceptable: A private Limited company cannot appeal for funding to the public, only the members of the company are allowed to contribute.
- There is a minimum subscription: It is necessary for a Pvt limited business entity to recover 90% of its subscription money after a certain period of time. If the company fails to do so, they would not be able to conduct any further business.
- It is a separate legal entity: A company is a separate legal entity from its owners.
- It is not easy to transfer shares of the company: A private limited business entity can only transfer its shares among the shareholders of the company. This restriction is placed to protect this entity from being overtaken by public entities.
- Borrowing capacity of the company: Easy access to loans and other forms of funding is one of the perks of a private limited company.
- A company can own its own property: As a private Limited company is considered to be separate from the owner, it is also considered as an artificial person. To that end, it can own, enjoy, rent or alienate property in its name. This property can be anything from a machinery, intangible assets, building, land, residential property factory etc.