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Private Limited Company, the most popular and convincible legal structure for new ventures or start-ups, should be chosen by anyone looking to build a scalable business. As the legal structure of private limited Company is not so regulated as compare to others. Start-ups and growing companies pick it because it allows outside funding to be raised easily, limits the liabilities of its shareholders and enables them to offer employee stock options to attract top talent.


Advantage of Private limited Company

  1. Limited Liability: It means that if the company experience financial distress because normal business activity, the personal assets of shareholders will not be at risk of being seized by creditors.

  2. Continuity of existence: business not affected by the status of the owner.

  3. Minimum number of shareholders need to start the business are only.

  4. More capital can be raised as the maximum number of shareholders allowed is 200.

  5. Scope of expansion is higher because easy to raise capital from financial institutions and advantage of limited liability.

  6. Brand Value: Company’s brand value will get increased because people come to about the company very well.

  7. Valuation: Since the share price reflects the company’s financial healthiness it become easy to arrive at a price in case of mergers and acquisitions.


Disadvantages of Private

  1. The shares in a private limited company cannot be sold or transferred to anyone else without the agreement of other shareholders.

  2. Not allowed to invite public to subscribe to its shares.


Minimum requirements for the Private Limited Company

  1. Minimum 2 Directors [As per Section 149 (3) of the Companies Act, 2013 (implemented with effect from 01.04.2014), every company shall have at least one director on its board of directors, who has stayed in India for a total period of not less than one hundred and eighty two (182) days in the previous calendar year.]

  2. Minimum 2 Shareholders. The directors and shareholders can be the same person.

  3. No Minimum Share Capital Limit.

  4. Application of allotment Director Identification Number (DIN) for all the Directors.

  5. DSC (Digital Signature Certificate) for two Directors.


Some Exemption to Private Limited Company

  1. Have been allowed to accept deposits from members without the requirement of offer circular and creation of deposit repayment reserve etc maximum of 100% of aggregate of its paid up capital and free reserves (which does not include securities premium).

  2. Major Relax exemption has been given from filing of board resolutions (MGT-14) with the ROC for the purposes mentioned under Section 179(3).

  3. OPCs, dormant companies, small companies and private companies having paid up share capital less than Rs. 100 crore have been excluded for calculating the limit of 20 companies for audit by an auditor.

  4. No need to pass “Special Resolution” for the purposes of passing of Resolution mentioned under Section 180. Example: 1. Borrow exceeding paid up capital & free reserves.

  5. An interested director of a private company can now participate in the Board meeting after declaring his interest. But will not count for the quorum.

  6. Loan to Director u/s 185 allowed subject to certain conditions.