Legal Advantages of Private Limited Company

Legal Advantages of Private Limited Company

Legal Advantages 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. is a type of privately held small business entity, in which owner liability is limited to their shares, the firm is limited to having 50 or fewer shareholders.

Some legal advantages of Private Limited Company are described below-

A limited number of members: The most important advantage of the Private Limited Company is that its members are limited. While minimum 7 members are required to Public Limited Company, Private Limited Company requires only 2 members and the maximum member is 50.

Commencement of business: The Company can start its business as soon as it gets ‘Certificate of Incorporation’. It does not need any permission letter to operate or start the business after ‘Certificate of Incorporation’.

Collection of minimum subscription: According to the Companies Act, it does not necessarily collect minimum subscription before distribution of shares as like as Public Limited Company.

Appointment of directors: Companies Act sec 83 [A] mentioned, Private Limited Company does not necessarily reform the board of directors. It enjoys much more freedom in the field of appointing directors and only two directors are required as a minimum to operate the business.

Profit distribution: Profits will be distributed to the shareholders in the form of dividends. This allows them to gather the benefit from their investment in the limited company.

Reduced tax burden: Another advantage of the private limited company is reduced tax payment. While sole proprietorship and partnership pay income tax, Private Limited Companies pay corporate tax on their taxable profits. There are many allowances and tax-deductible costs that can be offset against the profits of the company.

From the above discussion, we can say in the voice of Edward Manson, “Private Limited Company has been described as an incorporated partnership combining the advantage both elements- the privacy of partnership and the durability and origin of the corporate constitution.”