Advantages of a Private Limited Company

A private limited company (pvt ltd company) is the most common vehicle to carry on business for an entity intending to make a profit and enjoy the benefits of an incorporated entity, particularly limited liability. Besides, limited liability and minimal statutory compliances, pvt ltd companies offer the following advantages:

Separate Legal Entity

An entity means something which has a real existence; a thing with distinct existence. A company is a legal entity and a juristic person established under the Act. A juristic person is a person who is not a natural person or human being. Therefore a company form of organization has wide legal capacity and can own property and also incur debts. The members (Shareholders/Directors) of a company have no liability to the creditors of a company for such debts. Hence, a pvt ltd company is a legal entity separate from that of its members.

Uninterrupted existence

A company has ‘perpetual succession’, that is continued or uninterrupted existence until it is legally dissolved. A company, being a separate legal person, is unaffected by the death or other departure of any member but continues to be in existence irrespective of the changes in membership. Perpetual succession is one of the most important characteristics of a company.

Limited Liability

Limited Liability means the status of being legally responsible only to a limited amount for debts of a company. Unlike proprietorships and partnerships, in a limited liability company the liability of the members in respect of the company’s debts is limited. In other words, the liability of the members of a company is limited only to the extent of the face value of shares taken up by them. Therefore, where a company is limited by shares, the liability of the members on a winding-up is limited to the amount unpaid on their shares.

Free & Easy transferability of shares

Shares of a company limited by shares are transferable by a shareholder t any other person. The transfer is easy as compared to the transfer of interest in business run as a proprietary concern or a partnership. Filing and signing a share transfer form and handing over the buyer of the shares along with share certificate can easily transfer shares.

Owning Property

A company being a juristic person, can acquire, own, enjoy and alienate, property in its own name. No shareholder can make any claim upon the property of the company so long as the company is a going concern. The shareholders are not the owners of the company’s property. The company itself is the true owner.

Capacity to sue and be sued

To sue means to institute legal proceedings against or to bring a suit in a court of law. Just as one person can bring a legal action in his/her own name against another in that person’s name, a company being an independent legal entity can sue and also be sued in its own name.

Dual Relationship

In the company form of organization it is possible for a company to make a valid and effective contract with any of tis members. It is also possible for a person to be in control of a company and at the same time be in its employment. Thus, a person can at the same time be a shareholder, creditor, director and also an employee of the company.

Borrowing Capacity

A company enjoys better avenues for borrowing of funds. It can issue debentures, secured as well as unsecured and can also accept deposits from the public, etc. Even banking and financial institutions prefer to render large financial assistance to a company rather than partnership firms or proprietary concerns.

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Frequently Asked Questions

Common questions about Private Limited Company Advantages.

A private limited company (pvt ltd company) is a type of company that enjoys the benefits of being an incorporated entity, particularly limited liability. It is the most common form of business organization for entities intending to make a profit.

Some key advantages of a private limited company include being a separate legal entity, having perpetual existence, limited liability for shareholders, easy transferability of shares, the ability to own property, capacity to sue and be sued, dual relationship with members, and better borrowing capacity.

Being a separate legal entity means that a company has a distinct existence from its members (shareholders/directors). It can own property, incur debts, and enter into contracts in its own name, separate from its members.

Perpetual succession means that a private limited company has an uninterrupted existence, irrespective of changes in its membership. The company continues to exist even if members (shareholders/directors) leave or pass away.

Limited liability means that the shareholders of a private limited company are legally responsible for the company's debts only up to the face value of the shares they have taken up. Their personal assets are protected beyond that limited amount.

Shares of a private limited company are relatively easy to transfer. A shareholder can transfer their shares to another person by filing a share transfer form and handing over the share certificate to the buyer.

Yes, as a juristic person, a private limited company can acquire, own, enjoy, and alienate property in its own name. The shareholders do not have direct ownership of the company's property.

Yes, a private limited company, being an independent legal entity, can sue and be sued in its own name, just like an individual can bring or face legal action.

In a private limited company, it is possible for a person to be in control of the company (as a shareholder or director) and simultaneously be an employee or creditor of the same company, having a dual relationship with it.

A private limited company enjoys better avenues for borrowing funds, such as issuing debentures (secured and unsecured) and accepting public deposits. Financial institutions also prefer lending to companies over partnerships or proprietorships.