What is Private Limited Company? Find Best MBA Note

Want to learn What is Private Limited Company? If yes then this article is for you.

I am sharing a blog post today, especially for business study students. In this note, you will find the private limited company definition, its advantages, and its disadvantages.

This note is drafted in straightforward words, keeping in mind your academic requirements. I hope you will be benefited, so read the article completely and give me your feedback.

Private Limited Company Definition

A privately held business entity that is owned and controlled by two or more shareholders is called a private limited company.

In a private company, there are a minimum of 2 and a maximum of 50 shareholders. The liability of shareholders depends upon the percentage of shares they own in the business. This company is restricted from selling its shares to the general public through the stock exchange market.

Private Limited Company

Important Points

Private limited companies have limited liability and are not legally liable for any of the company's debts or liabilities.

The shareholders have limited liability in the business and are considered a separate legal entity from the personal belongings of their shareholders.

Private limited companies can't sell or core their shares on the stock exchange market.

Private limited companies are known as unlisted companies due to not list on the stock exchange.

Private Limited Company Advantages

Private Limited Company Advantages

The following are significant advantages of a private limited company:-

1. The Limited Liability

Each shareholder in the business is liable for a certain percentage of the business liabilities, depending on how many shares they own.

2. A Continued Existence

Since a private limited company is considered a separate legal entity, even if one shareholder dies or leaves the business, the business has a continued existence.

3. Better Managerial Efficiently

Private limited companies have better control compared to assault trader businesses or partnership businesses. Due to more number of shareholders, the roles and responsibilities of each shareholder are clearly, defined. Because of that, private limited companies will exhibit better managerial efficiency.

4 Having More Capital for Business

It means there are 2 to 50 shareholders in the business. They all will contribute capital to do the business. Because of this reason, there is more capital to do the business.

5. Pay Less Tax

Private limited companies paid less cooperation tax compared to public limited companies.

Private Limited Company Disadvantages

Private Limited Company Disadvantages

Private Limited companies or unlisted companies have the following few disadvantages:-

1. Less Capital for Business

Since private limited companies can't quote their shares in the stock exchange market, public limited companies accumulate more capital to do business by selling shares in the stock exchange market. But, private limited companies don't have the option to sell shares in the stock exchange market. Because of this reason, their capital to do the business will be comparatively less than a public limited company.

2. Shares Transfer is Not Easy

In a private limited company, shares are not freely transferable from one person to another.

3. Limited Numbers of Shareholders

The number of shareholders is limited. In a private company, the number of shareholders is 2-50. As the number of shareholders is limited, the amount and percentage of the capital needed to operate a business will also be less.

4. Requires Many Legal Formalities

There are various formalities associated with forming a private limited company. We have to prepare an article of association, a memorandum of association, and separate departmental documents to set up a private limited company. It makes the process of making a private limited company much more complicated.

Conclusion

Private limited companies have limited liability. There are 2 to 50 shareholders in a private company. A private limited company can not sell its shares freely on the stock exchange as not listed on the stock exchange, so the private company is also known as an unlisted company.

The advantages of a private limited company are limited liability, continued existence, better managerial efficiency, more capital for business, paid few taxes compared to public limited companies.

The Disadvantage of a private limited company is less capital for business, transfers of shares are not easy, the number of shareholders is limited, and the formation of companies requires many legal formalities to form a private company.

What is Private Limited Company? Find Best MBA Note