Private Limited Company
A Pvt. Ltd. Co. is a step above the Partnership format of doing business. The main difference between a Partnership firm and a Pvt. Ltd. Co., apart from the accounting and taxation differences, is that in a Partnership the liability of the partners is unlimited whereas in a Pvt. Ltd. Co. the liability of the Directors is limited to the extent of their share capital. A Pvt. Ltd. Co. is costlier to form and manage as compared to a Sole Proprietorship, Partnership, Limited Liability Partnership and One Person Company. Further, the yearly compliances required for running a Pvt. Ltd. Co. are also far more as compared to the above mentioned forms of business thereby incurring a substantial running expenditure.
FAQ
1. How many people are needed to form a Pvt. Ltd. Company?
A. A minimum of two partners are needed to form a Pvt. Ltd. As per the Companies Act, a minimum of two directors and two shareholders are required to start a Pvt. Ltd. Co.
2. Is there a maximum limit of Directors or shareholders?
A. Yes. There can be a maximum of only 15 Directors and a maximum of 200 shareholders in a Pvt. Ltd. Co.
3. Who can be a Director?
A. Any natural person who is over the age of 18, not declared insolvent and of sound mind can be a Director. There are no citizenship restrictions for becoming a Director in a Pvt. Ltd. Co. and a foreign national is allowed to be a Director.
4. What is the difference between Director and Shareholder?
A. Shareholders and directors have two completely different roles in a company. The basic difference between shareholder and director lies in the inherent feature that the shareholders (also called members) own the company and the directors manage it. Unless the articles say so (and most do not), a director does not need to be a shareholder and a shareholder has no right to be a director. But in most of the privately held companies, or the closely held family businesses, the shareholders and directors are necessarily the same persons.
Advantages of Pvt. Ltd. Co.
Limited Liability
The Liability of the Directors is limited to the extent of his shareholding. His personal assets are not at risk in case the company faces financial crisis.
Taxation point of view
The Pvt. Ltd. Co. can pay dividends out of the reserves that are made from its profits which are accumulated over the years. Such dividend is taxed @ 18.5% in the hands of the company and is tax free income for the Shareholders of the Company.
Perpetual succession
Since the company is a separate legal entity, the death, insolvency or any other misadventure of any of its directors or shareholders does not have the effect of cessation of the company. The Company keeps going on and on with new directors or shareholders if they somehow become unfit to remain as Directors of Shareholders of the Company.
Separate legal entity
The Pvt. Ltd. Co. is a separate legal entity over and above its directors and shareholders. The company is a separate person altogether capable of doing almost anything that a natural person is allowed to do.
Can buy and sell property
A Company, being a separate legal person, can buy and sell property in its own name.