What is Private limited company and its benefits?

Are you interested in starting a private limited company? It’s quite good to start operating this kind of company, but you might wonder a lot about what are the benefits from starting a private limited company. In this post we will discuss about what private limited company really is and its benefit to business itself, business owners, and the shareholders.  First we would like you to know the definition of the term.

private limited company

What is Private limited company?

A type of company that offers limited liability, or legal protection for its shareholders but that places certain restrictions on its ownership. These restrictions are defined in the company’s bylaws or regulations and are meant to prevent any hostile takeover attempt.

The major ownership restrictions are:

(1) shareholders cannot sell or transfer their shares without offering them first to other shareholders for purchase,

(2) shareholders cannot offer their shares to the general public over a stock exchange

(3) the number of shareholders cannot exceed a fixed figure (commonly 50).

An example of a limited liability company is Chrysler Group, LLC, whose ownership is separate from its management.

Source: businessdictionary

After knowing what Private Limited Company really is, I would like to move your attention to its benefits:

Limited liability

The first good things about  forming a limited private company is that when the company goes bankrupt, you ( ​​ if you are a company’s directors and shareholders) are required to pay only the amount of your shares you have in the company. For example, If you have purchased a share of 100,000$, your liability is limited to 100,000$ only, and only the assets of company will use to clear the debt. The creditors have no right to seize other properties besides the assets of the companies of the debtors. If the share is partially paid, then this can be required to pay only the unpaid value of the share. Unlike the unlimited company that has ‘unlimited liability’. If a business which is being carried on as a sole proprietorship or a partnership is not incorporated goes bankrupt, the proprietor or partners are personally liable for the debts of the business. The limited company offers the limited liability, as a result, many people are encouraged to invest in share of private limited company.

Tax advantages

Normally, private limited companies can have one or more shareholders. They cannot offer shares to the public. The business owners would enjoy paying the lower tax, because based on the law, sole trader and partnerships pay income tax and company pay corporation tax on their taxable profits. There is a wider range of allowances and tax deductible costs that can be offset against a company’s profits.

Business Continuity

Private limited company can enjoy permanent succession, because the company is private legal entity.  When a company is incorporated, it becomes a separate legal automatically. Employees and shareholders are just the agents of your company, so if they leave it doesn’t have any effects on your company or existent costumers.  More Companies and more companies has a degree of continuity and allow a number of different persons to participate as directors or shareholders.  A company continues to exist as a separate entity, and is not terminated or dissolved even when shareholders die or sell their shares which are an advantage over a traditional partnership.

Social benefits

Private limited company has some social benefits which should also be mentioned. Large resources of the companies allow large scale production so that they could enjoy number of economies which enable production at low cost, generate more sales and sure more profits. The society is automatically supplied with low cost yet high quality goods.

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  1. CHUNEET BANSAL
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