Disadvantages of Private Limited Company

Disadvantages of Private Limited Company

Disadvantages of Private Limited Company

The companies having minimum 2 and maximum 50 members and which are formed by at least two individuals having minimum paid-up capital are called the private limited company. Though there are various advantages of Private Limited Company, it is not out of disadvantages to all extent. Therefore it also has some disadvantages which are as follows:

Limited numbers of members: The first and most common disadvantage is its members are limited in few numbers. As the upper limit is restricted, it creates some disadvantages for the company. Because when the company needs another or more experienced and skillful Owners, it has no option to expand the business.

Restriction on transfer of shares: The basic disadvantage of a private limited company is that shares are not flexibly transferable. The members of private limited company sue not able to transfer the shares according to the Company Act.

Difficulties in the expansion: It is not so easy to transfer or expand the business of private limited company due to limited numbers of members, small or shortage of capital, provision of not to transfer or sale of shares etc. However, the economic growth may also be lined because maximum shareholders allowed are only 50.

Misrepresentation and Fraudulent Accounts: As it is not necessary to publish the financial statement of the company or other statements to the registrar or public, there may be chances of making or conducting fraudulent and misrepresentation in the accounting or other financial transaction. Sometimes, the accountants misuse their knowledge and try to show the income lower to get rid of the tax payment to the Government.

Centralized Authority: As the power and responsibility of managing the organization are confined into the hand of few members of the board of directors, it creates a centralized system of power. Therefore, the owners who are not related to the operation or management of the company may sometimes be deprived of their rights.

Autocracy & Nepotism: As the management of Private Limited Company enjoys the supreme power and autonomy, they often try to influence in critical decisions and especially in the recruitment and the subject matters that related to their own interest.

Small capital: Private limited company is not any large scale business so usually the amount of capital is not huge which often stands as a major problem for the persons concerned. Very often the company cannot utilize its future possibilities only because of the lack of proper financing.

The possibility of dissolution: These types of company have a strong possibility of liquidation and dissolution due to its inadequate capital, autocracy in management, a disadvantage of expansion of business, dissolution among the directors etc. Sometimes, the private limited company is being convened by the public limited company due to the above reasons.

In conclusion, it can be said that though the private limited company has various types of advantages, it is not totally reliably always because of its above-mentioned disadvantages. Especially in the case of larger scale and hearing business projects, the private limited company is not appropriate.