08 Characteristics of a Private Limited Companies

Private Limited Companies

Many types of business ownership styles can be seen in the current business world. Private limited companies are a fast-growing type of business in the modern business world. These are the businesses with multi-person ownership and limited liability to the owners. Even though these businesses can be seen as a simple concept, few characteristics highlight the private limited companies from the rest of the business types such as sole proprietorships, partnerships, and public quoted companies.

  1. Ownership – Ownership of this business type is limited between the shareholders. Investment is done by two or more shareholders in the company. The business will be run by a selected set of directors appointed by the shareholders. Due to this reason, the investments are low and the growth capacity is limited in Private limited companies compared to public limited companies.
  2. Starting the business – To start the business there should be a minimum of 2 members and the maximum number of members should be 200. The organization should be registered as a company under the registrar of companies.
  3. Structure – The organization structure is simple in these businesses compared to public limited companies. But there are a set of directors and a proper organizational hierarchy can be seen in this type of organization.
  4. Governing Documents -Many Private Limited companies are governed by Companies Act2014 and Memorandum and Articles of the Association.
  5. Liability – The owners’ liability is limited to the share capital they have invested. If the organization gets bankrupted, the owners do not have to pay the creditors using their money. From the lender’s point of view, there is a risk involved when lending money for a private limited Company.
  6. Legal formalities – A Private Limited company must register the business under the registrar of companies in the operating country. A written agreement is mandatory about the share contribution of each shareholder of the company.
  7. Tax treatment – A tax file should be opened under the name o the company and the company’s all the income should be subjected to taxation. The owner’s income does not carry any relationship with the organization’s tax policies as a private limited company is considered as a separate legal person in front of the law.
  8. Transferring Ownership – Transferring ownership of one shareholder is easier than in the process of partnership or sole proprietorship. The shareholder can sell his/her shares and they can simply move out of the business. The buyer of the shares will be the new shareholder in the private limited company.

Private Limited companies can be started by any two or more people who are willing to start a business and who can invest a sufficient amount of capital to the business together. Since the capital will be invested by a few people, the risk is getting distributed among the investors. The control of the organization activities is distributed among the directors and the risk is low due to making the decisions by several peoples’ agreement. But the decision-making process can be difficult as involved parties can have different opinions on the matter.

The shareholder can dissolve the company with mutual agreement. In a scenario like that, the name of the business should be removed from the registrar of companies. There are legal requirements that need to be fulfilled when closing down a business.

Private Limited companies can be seen often in the business industry. Usually, private limited companies are formed by a set of well-known people or a set of family members. Due to the low level of risk involved in these type of businesses are getting popular day by day.

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