Why Is A Private Company Better Than A Public Limited Company

Why Is A Private Company Better Than A Public Limited Company?

Strategy 5 Mins Read December 30, 2023 Posted by upasana sarbajna

A PLC, or a public limited company, is a company structure that is available to businesses in the United Kingdom. Unlike all the other structures like sole traders or partnerships, this type of business exists as a completely different entity to the owners and offers protection from debts and liabilities.

A private limited company also offers quite a few advantages over the bigger corporations but with a lot more flexibility and a lot fewer regulations. The private companies are different from public limited company because they may not be able to offer their shares on the open market.

A private limited company is one of the most preferable choices when it comes to most of the people in businesses.

It is a kind of business entity that offers a limit in liability and also limits the number of shareholders to a total of 50. It is pretty easy to develop and is more flexible in comparison to other businesses.

In this article, we shall discuss why a Private Limited Company is a better alternative to a Public Limited Company. So, stay with us till the end to find out more about the same.

What Is A Private Limited Company?

“A Company having a minimum paid-up share capital as may be prescribed, and which by its articles, ? (i) restricts the right to transfer its shares; (ii) except in case of One Person Company, limits the number of its members to two hundred; (iii) prohibits any invitation to the public to subscribe for any securities of the company.”

Private companies have the upper hand over a public limited company when it comes to investment in long-term strategies, keeping the share values and the fiscal figures discreet, flexibility, and freedom of operations.

Characteristics Of A Private Company

Now that you are aware of what a private company is, the next step would be to know about the characteristics of such companies. You need to see how it is different from a Public Limited Company.

Membership: Like every public limited company, a private company requires a minimum of at least two shareholders to begin with. However, because it remains a small entity, the maximum limit on this number is 200. The company also needs two directors to run the company.

Limited liability Structure: When it comes to a private limited company, each member’s liability or the liability of the shareholders remains limited. Therefore, even when there is a loss, in any case, the shareholders would be liable to sell off their own assets to repay. However, the individual and personal assets of the shareholders do not remain at risk.

Separate Legal Entity: A private limited company is a completely separate legal entity and continues with its perpetual succession. This shows that upon the death of all the members, or in case of insolvency or bankruptcy, the company would still exist in the eyes of the law. The life of the company would still be perpetual, and it would have no effect on the lives of the shareholders or the members. The only way to dissolve a private company is by resolution.

Minimum Paid-Up Capital: A private company would be required to keep and maintain a paid-up capital of at least Rs 1 lakh in India. However, this has not been more applicable since 2015, but businesses have maintained this number since then.

Types Of Private Company

There are mainly three types of private companies. They are:

Company Limited By Shares

Within a company limited by shares, the liability of the shareholder has a restriction towards the unpaid amount over their shares. In the further course of the business, none of the shareholders would have to pay more than the unpaid amount. They would only be liable for the calls that are unpaid by them.

Company Limited By Guarantee

Unlike a Public Limited Company A private company is limited by a guarantee which limits the liabilities of all its members till the amount that they will be contributing while winding up.

A company of this type is generally registered as a NOT-FOR-PROFIT organization or for the purpose of charity.

Unlimited Liability Company

It is a type of corporation where the liability of the members is up to the liabilities of the company. Creditors may ask for a repayment of their debts even from their shareholders. It is when the company is not able to repay.

You’d be wondering why the unlimited company is a company when it doesn’t have any special features of a company. i.e., it is a completely separate legal entity, right?

The unlimited company is a separate legal entity. Therefore no shareholder would be responsible for the behavior of the other. And may not be able to sue them.

Advantages Of A Private Limited Company Over A Public Limited Company

Below are the major advantages of a private company:

Constrained Liability

In comparison to a sole proprietorship, private companies get the benefits from constrained liabilities. This means that the shareholders and the companies are two separate legal entities. This means the shareholders would not be responsible for the liabilities or the debts of the company.

Limited And Simple Trading Of Shares

Public companies may list all their shares on the stock exchange and get large funds from the general public. However, this is not how a public limited company would work. They have restrictions from doing this. However, trading in shares is more of a simple process within a private company in comparison to a public company.

Continued Existence

A private company would operate on the concept of perpetual succession. This means it has a continuing existence. Even if the shareholders die or quit, the company would still continue to exist in the eyes of the law.

Insulated Property

A private company may sell or purchase assets or property on its own. A company, in the eye of the law, is a whole legal personality. They may have their very own assets and liabilities.

But, the main thing to note is that shareholders can’t own any of the assets or liabilities of the company. Just like it, none of the properties of the shareholders would belong to the company either.

The Bottom Line

A private limited company is a well-preferred and flexible corporate structure. It offers the entrepreneurs operational freedom, limited liability, and a potential for expansion. This is a structure business owners frequently choose because of its advantages. It also offers more protection than a regular Public Limited Company.

You may be able to decide if it is the best option for your business by knowing about its procedure of formation, operational factors, and its advantages.

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Upasana is a budding journalist who has a keen interest in writing. She considers writing as therapeutic and is most confident when she writes. She is passionate about music, movies and fashion. She writes in a way that connects with the audience in a personal level. She is optimistic, fun loving and opinionated.

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