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Private Limited Company Advantages and Disadvantages

A business structure known as a private limited company divides the company’s shares among its owners. Directors will oversee the operation of the company and are responsible for matters such as corporation tax payments. Any money left over after corporation tax deductions from company earnings might be given to shareholders.  Here are the pros of a private limited company: limited liability, being a legally separate entity, raising funds, professional reputation and tax advantages, credibility, control over ownership, and reduced requirements for compliance. Share transfers are simple and free. The cons of a private company are limited access to funding, higher setup costs, a limited number of members; legal compliance requirements, a limited ability to transfer ownership, created persona accountability for directors, difficulty in attracting talent, a lack of transparency, and Limited share transfers. So let us check out the pros and cons of private limited company to better understand this topic.

Pros of Private Limited Company | Advantages of Private Limited Company

Limited liability

One of a private limited company’s biggest benefits is the limited liability protection it provides to its owners. This indicates that in the event that the company incurs debt or liabilities, the assets of the shareholders are unaffected.

Legal separate entity

A private company is able to sue or be sued in its own name, own property, and enter into transactions.

Raising funds

With the exception of public limited companies, a private limited company is the only type of business in India that can raise capital from angels or venture capitalists.

Professional reputation

Transacting business to a limited company can improve your reputation and project a professional image. This is because limited businesses have legal compliance standards and reporting requirements in place, making them subject to far stricter oversight than other organizational forms.

tax advantages

Private limited companies are entitled to a number of tax breaks and incentives, including reduced tax rates, business expenditure deductions,, and income exemptions for specific categories.

Credibility

Compared to other business forms, a private limited company is frequently regarded as having greater credibility and competence, which can aid in drawing in better investors, clients, and workers.

FDI (foreign direct Investment)

100% foreign direct investment (FDI) is permitted in private limited companies, meaning that any foreign individual or organization may make direct investment in the business. FDI will support the company’s national and even international expansion.

Control over ownership

In a private limited company, the owners have the authority to determine who is able to purchase and sell company shares.

Requirements for compliance are reduced

Private limited companies are subject to fewer regulations than public limited corporations, which can lower their expenses and administrative burden.

Share transfers are simple and free

Shareholders may transfer shares to any other individual in a firm that is restricted by shares. Compared to the transfer of an interest in a company operated as a partnership or a private concern, the transfer is simpler. Shares can be transferred easily by completing and signing a share transfer form and then giving the buyer of the shares the paperwork and a share certificate.

Cons of Private Limited Company | Disadvantages of Private Limited Company

Limited access to funding

It is more difficult for private limited companies to raise significant sums of money since, in contrast to public limited companies, they are not allowed to sell shares to the general public.

Higher setup costs

There are several processes that need to be completed when forming a private limited company, and they can be expensive and time-consuming. A business must be registered with Companies House, which is a cheap process. But only after a business name has been chosen and registered, directors have been appointed, shareholders have been nominated, and all legally required documentation, such as the memorandum of association and articles of association, have been prepared.

Number of Members

A private limited company has a limited number of members. A public limited corporation can have a limitless number of members, whereas it can only have a maximum of 200.

Legal Compliance requirements

Annual filings and other reporting requirements are just a few of the legal and regulatory requirements that apply to private limited enterprises. Fines and penalties may be applied for breaking these legal obligations

Limited ability to transfer ownership

It is difficult for shareholders to leave the company or for new investors to join. Because shares in a private limited company cannot be readily acquired or transferred,

Created persona accountability for directors

Compared to shareholders, directors of a private limited company are more personally liable for the debts and liabilities of the firm.

Difficulty in attracting talent

Talent attraction and retention can be challenging for private limited companies. Since they might not provide the same perks and rewards as larger publicly traded businesses,

Lack of transparency

Investors find it more difficult to assess the performance and prospects of private limited companies. Since they are not obligated to provide as much financial information as public limited companies,

Limited on share transfers

Under the terms of its AOA, a private limited company’s shares are not transferrable and cannot be traded on stock markets.

Thank you for reading this article. If you have any queries regarding our article on the pros and cons of a private limited company, then do leave a comment in the comment section below.

Explore more information:

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