Advantages and Disadvantages of Private Limited Company
According to under section 2 (28) of the Companies Ordinance 1984, a Private Limited Company means a company which by its Articles of Association.
- Restrict the rights to transfer its shares to any person, if any.
- The number of its member limit is 50.
- Prohibits any call to the general public to pledge for the shares of the company.
A private limited company can easily be started and registered by combination of two members. The day to day affairs of management is carried out by the directors. Books of accounts are properly prepared, maintained and their audit is compulsory once in a year. A private limited company can be wound up with the consent of members and also through court. Shareholders in a private limited company are well known to each other due to close relationship.
Advantages of a Private Limited Company
The major advantages of a private limited company are as under:-
- One of the advantages of private limited company is that members are well known to each other; however control is in the hands of owners of capital.
- In the management of affairs and conduct of business is greater flexibility.
- Statuary meeting is not required as well as submitting of a statuary report.
- The number of directors in a private limited company is at least two.
- One of the advantages of private limited company is that its limited liability, due to which every members enjoy this facility. It has the advantage of a public company and a partnership firm.
- A private company after receiving certificate of incorporation start business immediately.
Disadvantages of a Private Limited Company
The disadvantages of these companies under section 2 (25) of the Company Ordinance 1984 are as under:-
- One of the disadvantages of private limited company is that it restricts transferability of shares by its articles.
- In a private limited company the number of members in any case cannot exceed 50.
- Another disadvantage of private limited company is that it cannot issue prospectus to general public.
- In stock exchange shares cannot be quoted.
Private Limited Company Characteristics
The major features/characteristics of such companies are as follows.
- It can be formed by two members but the number of member limit shall not exceed 50.
- There are restrictions on filling the prospectus of statement in lieu of prospectus with the register.
- It can begin business after registration without requiring any certificate.
- Statuary meeting is not required as well as not to submit statuary report.
- The number of director at least should be two in numbers. However the maximum numbers of directors are mentioned in the Articles of Association.
- Without any prior approval of the government, directors of a company can easily receive loan.
- It is necessary that there should be at least two members in a meeting to make a quorum.
- The payments are made to the directors and the management staff are required no restrictions.
- The financial report i.e. balance sheet and profit and loss were not require to send the copies account to the registrar.
- The word (Private) limited is compulsory to use as the last word of the name.
- It cannot be listed on stock exchange of the country.
According to the Companies (Amendment) Ordinance 2002, a new concept of single member private company (SMC) has been introduce to admit the individual businessman in the corporate sector as a company having limited liability. In case of single member private company, the quorum shall be single member present in person or by proxy.