Private Ltd

Private Ltd
Published On: Dec 19, 2018 • Last Updated: Jul 29, 2022 • 5.4 min read •
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A Private Limited Company is a business entity held by small group of people. It is registered for pre-defined objects and owned by a group of members called shareholders. Startups and businesses with higher growth aspiration popularly choose Private Company as suitable business structure.
The business entity gets recognised as a Company through its registration under Companies Act of 2013 in India. The governing body is Ministry of Corporate Affairs, widely known as MCA. The definition of Private Company under the Act is provided here to understand its basics. Section 2 (68) of the Act defines a Private Company as under:
A Company having a minimum paid-up share capital as may be prescribed, and which by its articles,— (i) restricts the right to transfer its shares; (ii) except in case of One Person Company, limits the number of its members to two hundred; (iii) prohibits any invitation to the public to subscribe for any securities of the company
From the basic reading, we understand that a Private Company’s share transfer is restricted with some of the conditions. Further, if its members exceed 200, it stops to be a Private Company. It further inherits the prohibition to invite the public at large to subscribe any securities. In absence of any of these conditions, the company loses its identity as a Private Company.
To understand the structure rightly, I would like to brief these features of Private Limited Company here.
The shareholders are the real owners of the company. The ownership in a Private Limited Company is defined by share capital. Shares are the equal parts of the company’s capital. The ratio of ownership is defined by shares held by the owners in the company.
Such kind of arrangement in shareholding is one of the reasons for investor to be attracted towards company form of businesses. The equity ownership is convenient option for them to pursue ownership in a business. Further, the shares can also be issued at premium to introduce more capital, which eases the investment process.
Ownership in form of shares is easily transferable, compared capital of other structure like LLP. However, it is subject to restriction as mentioned in the definition above. If a shareholder is seeking exit from the company, he is first required to offer the shares to an existing member and then to a third party. Further, the proposed transfer is required to be approved by the Board Members for the good of company. This kind of restriction is put to retain the private ownership of the company. Moreover, the shareholders cannot trade shares publically or on the stock exchanged like a listed company.
Shareholders of a company are also known as members. To register a Private Limited Company in India, minimum two members are required. Here, an individual or even a body corporate can become a member of the company. There is a ceiling limit to the number of members in a Private Company. The same is provided as maximum of 200 members. The exception here is One Person Company, where there is only one member.
To calculate the number of member in a private company, following it considered further.
The Private Companies are prohibited by its definition to invite public for subscription of securities. Public companies can issue prospectus to invite public at large for raising capital. However, this is not allowed in case of Private Company. It is banned to invite subscription from public by issuing such documents.
The other features, also befitting as benefits of Private Limited Company are discussed in series of our blog.s
Private Limited Company is preferred structure by startups because of stability and growth opportunities offered by this structure. Further, it assures separate legal existence from its members. So, it can involve into contracts and legal proceedings in its own name. Moreover, a company’s status is unaffected from any change in members and management.
Separate managerial board i.e. Board of Directors is beneficial for members interested for investment purpose. Where Board works on remuneration, the members receive profit sharing in form of Dividend.
It also offers various funding options in form of private equity, ESOP and more. This makes it more suitable for external funding options. And thus, it is more preferred by VCs, Angel Investors, and other outside funding agencies compared to any other business structures. It also is rather preferred by banks and lending agencies because of the credibility that it holds as a corporate structure.
A private company is eligible to take benefit of registration under Startup India Scheme of Government of India. This scheme avails multiple benefits including tax exemptions for the recognised startups.
Because of these reasons, it is the priority for both family-based businesses and start-ups. Where service-based businesses tend to choose LLP, Pvt Ltd is suitable for product based and growth-oriented businesses.
The promoters quite often face some myths and dilemmas, while considering Private Limited Company Registration. We have addressed such myths and dilemmas in our blog: Private limited company: Busting the myths
There are various types of Private Company, classified based on liability and capital. Here, we are discussing such in brief.
Based on Capital: A Private Company can be registered with or without share capital. The type of company based on capital is provided in the capital clause of the MoA of the company.
Based on Liability: The members’ liability can be limited or unlimited. Usually, companies are registered with Limited Liability in India. In case of companies with shareholding, members’ liability is limited to unpaid capital on subscribed shares. In case of companies without shareholding, the agreed amount of liability in form of capital is provided in MoA of the company.
One Person Company: One Person Company, popularly known as OPC is a type of Private Limited Company. It is a company registered with only one shareholder. This structure benefits such promoter, who does not want to share the ownership rights.
In addition to above-mentioned types, there are other categories and types of companies in India .
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Ltd. is a standard abbreviation for "limited," a form of corporate structure available in countries including the U.K., Ireland, and Canada, and appears as a suffix after the company name. Limited companies limit the liability of a corporate loss to the business and do not impact the private assets of owners or investors. Limited companies may be set up as either private or public (PLC).

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A limited company (LC) is a form of incorporation that limits the amount of liability undertaken by the company's shareholders.

The acronym PLC, or public limited company, indicates that shares in the firm are publicly traded. This abbreviation is used in the United Kingdom.

GmbH is an abbreviation of the German phrase "Gesellschaft mit beschränkter Haftung," which means "company with limited liability."

C corporation: the owners or shareholders are taxed separately from the corporation itself, profits are taxed on both a business and a personal level.

BHD (Berhad) is a three-letter suffix used by Malaysian companies to denote limited liability, similar to LLC in the U.S. or Ltd. in the U.K.

N.V. is an acronym for the Dutch phrase Naamloze Vennootschap, which is the equivalent of a public company in the Netherlands and elsewhere.

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Ltd. is a standard abbreviation for "limited," a form of corporate structure available in countries including the U.K., Ireland, and Canada. The term appears as a suffix that follows the company name, indicating that it is a private limited company . In a limited company, shareholders' liability is limited to the capital they originally invested. If such a company becomes insolvent , the shareholders' personal assets remain protected.

A limited company is its own legal entity. A private limited company has one or more members, also called shareholders or owners, who buy in through private sales. Directors are company employees who keep up with all administrative tasks and tax filings but do not need to be shareholders.

Limited companies are an organizational form that features limited liability.

The company’s finances are separate from the owners’ and are taxed separately. The company owns all profits and pays taxes on them, distributes a portion to shareholders as dividends and retains the rest as working capital . A director may withdraw funds only for a salary or dividend payment or loan.

By setting up a private limited company, it becomes separate from the people who run it. Any profits made by the company can be pocketed after taxes are paid. The corporation's finances must be kept separate from any personal ones in order to avoid confusion.

Public limited companies (PLCs) are also commonly used in the U.K. and some Commonwealth countries, as opposed to "Inc." or "Ltd.," which are the norm in the U.S. and elsewhere. The mandatory use of the PLC abbreviation after the name of the company serves to instantly inform investors, or anyone dealing with the company, that the company is public and probably fairly large. 1

PLCs are often best used to raise capital, but they also bring increased regulation.

PLCs can be listed or unlisted on a stock exchange. Like any other major entity, they are strictly regulated and are required to publish their true financial health so shareholders (and future stakeholders) can size up the true worth of their stock. The lifespan of a PLC is not determined by the death of a shareholder.

All companies listed on the London Stock Exchange (LSE) are PLCs.

For anyone in the U.K., there are several things you'll need in order to set up a private limited company, including: 2 3

Once you have these together, you can then register as a private limited company.

Limited company structures are common worldwide and are codified in many nations, though the regulations governing them can differ widely from one nation to the next. For example, in the United Kingdom, there are private limited companies and public limited companies.

Private limited companies are not permitted to offer shares to the public. They are, however, the most popular structures for a small business. Public limited companies (PLCs) may offer shares to the public to raise capital. Those shares may trade on a stock exchange once a total share value threshold is met (at least GBP 50,000). 4 Such a structure is widely employed by larger companies.

In the United States, a limited company is more commonly known as a corporation (corp.) or with the suffix incorporated (inc.). Some states in the U.S. do permit the use of Ltd. (limited) after a company name. Such a designation depends on filing the correct paperwork; just adding the suffix to a company name does not provide any liability protection. Limited companies in the U.S. are required to file corporate taxes annually with regulators. 5 A limited liability company (LLC) and limited companies have different structures.

Many countries differentiate between public and private limited companies. For example, in Germany, the Aktiengesellschaft (AG) designation is for public limited companies that can sell shares to the public while GmbH is for private limited companies that cannot issue shares.

Because the number of shareholders is unlimited, liability is spread among multiple owners rather than just one. A shareholder loses only as much as he invested if the company becomes insolvent. For example, say a private limited company issues 100 shares valued at $150 each. Shareholder A and Shareholder B own 50 shares each and paid in full for 25 shares each. If the company becomes insolvent, the maximum amount Shareholder A and Shareholder B each pay is $3,750, the value of the remaining 25 unpaid shares each member holds.

A private limited company has greater tax advantages than a sole proprietorship , partnership, or similar organization. The company exists into perpetuity even if an owner sells or transfers his shares, securing jobs, and resources for the community. Because a private limited company produces goods at a lower cost and increases profits, financial institutions loan the company more money for operations and expansions and the company’s annual revenue increases.

Shares are sold privately, restricting the amount of capital raised. All shareholders must agree to sell or transfer shares to someone outside the company. The company can borrow money, but a director must offer a personal guarantee to repay the debt if the company cannot; the director’s personal assets are put at stake and not protected under private limited company laws. If a loan is owed to the company at year-end, additional taxes apply. A director becomes personally liable if the company becomes insolvent and the director does not act in the best interest of the creditors.

Legislation.gov.uk. " Companies Act 2006 ." Accessed August 27, 2020.
Gov.uk. " Running a limited company ." Accessed Sept. 7, 2020.
NIBusinessInfo.co.uk. " Legal structures for businesses - an overview ." Accessed Sept. 4, 2020.
Internal Revenue Service. " Instructions for Form 1120 ," Page 2. Accessed Sept. 6, 2020.

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A company that does not offer its stocks for sale to the general public
A private company is owned by either a small number of shareholders, company members, or a non-governmental organization, and it does not offer its stocks for sale to the general public. Instead, its stock is offered, owned, or exchanged privately among a small number of shareholders – or even held by a single individual. Private companies are also referred to as privately-held companies, limited companies, limited liability companies , or private corporations, depending on the country they’re incorporated and how they are structured.
Private companies may include family-owned businesses, sole proprietorships , partnerships, and small to medium-sized enterprises (SME). Since such companies lack access to the public exchange market, they can only raise funds through private investments, company profits, or loans from lenders.
A sole proprietorship is a business owned and managed by one person, and the owner bears unlimited personal liability on the debts incurred by the business. All of its assets, liabilities, and obligations are the responsibility of the business owner.
If the business goes into debt, the owner may be required to sell personal assets to settle the debt. The owner can decide to either run the business on their own or employ other people to help run the business.
A partnership has a lot of similarities to a sole proprietorship, except the partnership is owned and managed by two or more people who come together with the goal of making a profit. The partners bear unlimited personal liabilities on any debts incurred by the business. The main types of partnerships include general partnerships, limited partnerships, and limited liability partnerships .
A corporation is a for-profit or not-for-profit business entity that exists as a separate legal entity from its owners. A corporation possesses the rights and privileges of an individual, as it can enter into contracts, sue or be sued, own assets, and pay taxes. Corporations are owned by shareholders or individual investors who provide capital to the business through the purchase of the corporation’s stock.
The shareholders are required to elect a board of directors, which is required to oversee the overall operation of the business. The board appoints the managerial officers, such as the chief executive officer (CEO), who supervise, direct, and manage the core business activities of the corporation.
Public companies are under high scrutiny from their shareholders, regulators, and the government, and they are required to publicly release their financial statements by filing the quarterly reports, annual reports, and other major events with the Securities and Exchange Commission in the United States, or with a similar government entity in other countries.
In contrast, private companies can choose to keep their financial status and operations to themselves, avoiding government scrutiny and all the regulations that apply to publicly traded companies. There are no legal obligations for private companies to make their financial statements public. However, privately held companies must keep their accounting records in order and make financial statements available to their shareholders.
Companies sometimes opt to stay private to retain their family ownership. Some of the biggest US companies are family-owned, and they’ve been passed on from one generation to another. Going public would mean that the company would
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