Private Limited Companies:

Private Limited Companies:

A private limited company is a type of company that offers limited liability or legal protection for its shareholders and has certain restrictions on its ownership.

A private limited company is a company that offers limited liability to its shareholders. Private limited company’s shares are not bought and sold on the stock market and can only pass to another person with the agreement of other shareholders.

Methods to start a private limited company: Following methods has to be followed to start a private limited company.

·        Memorandum of Association (MOA): This document deals with outside relationship of the company. The main purpose of Memorandum of Association is for awareness to shareholders about the company so as they will know where they may invest their amount and anyone who is dealing with the company should have knowledge about the company with which they are about to get into contractual relationship

It includes following clauses

¨     Name of the company

¨     Registered office

¨     Objective of the company

¨     Total shares in the company

¨     Number of shares taken by board of directors

·        Articles of Association (AOA): This document contains internal rule of the company. These are the methods to maintain internal discipline of the company such as

¨     Rights and obligations of the directors

¨     Procedures to call a meeting

¨     Procedures to elect the directors

¨     Borrowing powers of company

·        Statutory Declaration: Here in forming of a public limited company it is a declaration citing that the requirements of registration have been met with. A statutory declaration can be prepared by an advocate or a chartered Accountant or others concerned authorities.

·        Getting Certificate of Incorporation: After preparing MOA, AOA and Statutory declaration these are forwarded to registrar of companies. After going through all documents, if a registrar is satisfied issues a Certificate of incorporation. Company is now free to collect money from shareholders and start business

Features of Private Limited Companies:

ü A private limited company should use the word Limited or Ltd. at the end of the name of the company.

ü Maximum number of shareholders are 50

ü It is owned by shareholders

ü It is controlled by board of directors

ü Shares are not freely transferable

ü No need of trading certificate. Certificate of incorporation is enough to start

ü Could not issue shares to general public

ü Profit received by board of directors and provide dividend to share holders

Advantages of Private Limited Companies:

ü Shareholders have limited liability.

ü There is no limit on the maximum number of shareholders.

ü It has a separate legal identity; death of a shareholder does not affect the life of company.

ü No need of getting trading certificate to commence business.

ü It can have a minimum of one Director.

Disadvantages of Private Limited Companies:

ü It cannot invite the general public to buy its shares and debentures.

ü Shares cannot be transferred freely.

ü Relatively lower capital than public limited company.

ü Original owners of the companies may lose control of business.